“What good is freedom , God laughs at people like us” – David Byrne
Readers should spend an hour over Christmas listening to the Laing Cat’s podcast on the FCA’s proposals to close the advice gap. Tom McPhail is perhaps more committed to getting the Advice/Guidance boundary right than anyone else and he , Michael Lawrence and Nathan Best do a good job of teasing out what the FCA are up to. You can spend a few minutes listening to the Talking Heads magnificent rendition of “People like us” at the end of this blog.
For a long time the boundary was on the margin not just of advice and guidance but of pension debate. But today it’s hard to think of a more talked about challenge in the UK savings market than closing the advice gap.
Previous attempts have barely dented the surface (FCA clarifying the boundaries) or have fallen at the first fence (simplified ISA advice). The FCA’s latest attempt feels different and has the potential to benefit millions of customers in need of support.
The FCA have put now consolidated their thinking into three proposals:
- Clarifying the advice boundary – helping organisations be clear on how to deliver meaningful customer support without making a personal recommendation.
- Targeted support – enabling providers to deliver much clearer direction to customers to meet their savings and retirement needs.
- Simplified advice – targeted around a specific customer need which benefits from a personal recommendation but doesn’t require holistic advice.
In isolation the first proposal is unlikely to make a difference, but alongside the other two it can only help. Proposals two & three open up much wider opportunities for providers to help members, the most significant being targeted support.
The FCA has identified wealth accumulation and decumulation decisions as prime scenarios for addressing customer needs through targeted support. Decisions around how much to save, for how long, and how to spend those savings sustainably in retirement are central to meeting these customer needs.
On the boundary but no longer marginal
Far from being at the margins , the FCA’s latest paper has a forward from Treasury Secretary Bim Afolami and as Tom puts it – “has the Treasury’s fingerprints all over it”.
Tom has a wonderful description of the FCA’s approach as saying things
“louder and slower , like a British tourist on holiday”.
That is a first class simile and is entirely in line with my reading of the paper.
Michael Lawrence, Tom and Nathan Long make a good team.
The excitement is around targeted support because of its innovation, suggesting that “people like us/you/me” point us to a definitive course of action. Nathan calls this the “rocket boosters to make the consumer duty work”. Others would call it “herding”.
But I’m an optimist and reckon we can point to the wisdom of the crowd. It certainly is a way for the Government to get people to do things.
All three agree that it allows product providers to validate decisions made about the products they are already using. There needs to be courage and conviction for targeted support to work
More than a marketing fillip for non-advised SIPPs
McPhail says that this is an innovation that works for the big firms operating outside the workplace.
Tom and Michael tease Nathan that it’s
“Helping Hargreaves Lansdown to flog more stuff,”
I agree[ that it will be commercially attractive to primarily non-advised firms , but this is missing a bigger point, which the pod returns to in the last ten minutes.
It is not just the big firms of advisers and vertically integrated SIPP providers who could be using targeted support. It is also the big master trusts and even the trustees and administrators of DB plans, all of whom face big challenges from savers with important decisions on how they get their pensions and pots paid to them,
And the lad’s talk is about “pointiness” ‘ which I take to mean the definitive course of action that equates to a recommendation (but isn’t quite because it’s other people who are being referred to – people like us).
Talk wanders into a new phrase “a targeted suggestion” which is about as pointy as you can get without telling people what to do. The targeted support needs to disclose what information the support had to hand to make the suggestion. The lads see this as the biggest problem to solve, but within the world of workplace pensions, there is plenty of data to hand. The key is to link what we know of a saver and their history, to what they want.
Charging a fee for a product plug?
Tom is surprised to see a discussion in the paper about how there might be a built in product charge for offering targeted interventions. I’m not surprised, paying to be plugged a solution sounds like commission to me, especially if the product charge is linked to the take up of the support. This may sound like commission but it’s inherent in ad valorem fees.
Costing “targeted support” is something that workplace pensions have been doing since inception. Cross subsidising support from what looks like an investment charge is how we pay for everything from Pension Bee to Nest.
The issue is less the cross subsidy (we’ve been cross subsidising providers through AMCs ab initio), the issue is more about delivery. Are we getting the help we need to take the tough decision asked of us?
Michael calls this ” unlocking value in existing products” and asks how targeted support works for small firms who don’t have the existing customer bank. The answer is that it doesn’t – which is why consolidation is happening.
I think we can agree that we can afford to pay fees for product features to be plugged, as long as the fees are reasonable and the support efficient. In short “targeted support” needs to be value for money.
Simplified Advice – piggy in the middle?
There’s a general feeling on this podcast, that simplified advice serves little purpose that can’t better be served by those getting targeted support and those opting for full holistic advice.
I’ve seen this argued the other way round , particularly by Vanguard’s Sean Hagerty. who sees the payment of fees for simple advice as a door opener for his business. I suspect that simple advice will prove popular for well-heeled but unsophisticated investors for whom Vanguard’s approach is designed. It is a product for the mass affluent.
But McPhail and his colleagues seem sceptical . They see the scope for targeted support as being wide enough to squeeze out simple advice in the mass market and they see advisers continuing to cherry-pick the wealthy clients who really need full holistic advice.
Everyone agrees that the conversation has a long way to run. However, I see the endorsement of targeted support as something that can be practiced outside the FCAs regulatory perimeter as encouragement to the support teams of workplace and non-advised non workplace pensions, to get on with what they do best, holding the hands of people like us.
