Simple Advice – Not quite so simple
I’ve heard many people discuss the need for simplified advice, yet how can simple advice be appropriate without taking account of a client’s personal and financial situation, their tax status and the options available to them, amongst other considerations. In essence, without providing the prevailing advice standards?
I understand the need for people to obtain financial advice and I’m fully aware that under the present environment advice is complicated. This has made it almost impossible to offer a full advisory service for clients of normal means on commercially viable terms.
Surely though, we should be looking at what is making financial advice so complicated and costly, rather than creating an additional structure where people will not actually receive anything that will resemble thorough and unbiased advice.
The causes of many of the complications in providing advice are related to legislation and the constant changes to it.
Changing tax and pension rules over the years, without giving due consideration to the prevailing rules at the time, have resulted in an ever increasing minefield that an adviser must navigate on behalf of their clients.
The only situation where someone can properly receive advice for a situation that could be described as simple is before they have obtained any financial products.
A few years ago, there was a great opportunity to make the advisory needs for newcomers to pensions relatively simple, yet the bureaucrats, as they tend to, decided to create a complicated structure for new pension provision called auto-enrolment.
In my opinion, this now makes a simple advice solution impossible, as any long-term pension saving recommendation, must firstly assess the adequacy of the individuals employed scheme available to them and then, if they decide to go elsewhere, they need to convince the employer to incur further cost by dealing with the auto-enrolment reporting requirements on an individual basis, hardly something they will be keen to do.
Under this model of arranging pensions via an employer, there are now perhaps hundreds of thousands of people with a pension not being invested appropriately based upon their individual circumstances and views, yet we’ll overlook this for the time being!
At least they are going to have something other than a state promise. I do wonder how the FCA continue to bang the drum on individual investment risk, while ignoring such widespread shoehorning into one-size fits all solutions that is happening with auto-enrolment.
In future, many individuals will end up with numerous employer schemes, all of which will be different and how can you simply decide which is the best one to keep, or whether they should all be moved elsewhere. I believe that under a simple advice model, firms will just flog their restricted solution under the guise of advice.
Presently, many clients throughout the country are recommended products that aren’t the best solution available to them, via the restricted advice model (I’m using the old tied/multi tied definition here, I understand many people who feel they are genuinely unbiased are now ‘restricted’ advisers).
Do we really want to make it easier for people to flog their restricted offering? Whilst there are now many attractive and simple offerings available to the public, do you really feel these will be the ones that will end up on the computer screens of would be financial consumers, or in major banks if they offer simplified advice? Money buys marketing space and higher charging products can afford better and more widespread marketing.
Consumers need someone on their side of the table, filtering out the noise, hype and sales. In short, they need people to be independent.
You may have gathered that I believe simplified advice will be a sham and won’t actually be advice at all. In relation to simplified advice, I am curious to know, what exactly should we ignore about a clients personal and financial situation to make the job of providing advice easier?
Presently, a huge amount of the general public is essentially priced out of value-added financial advice and I feel that something should be done about it, yet I feel we are looking in the wrong direction.
It is my opinion, that there is a huge need to simplify the tax system, historic and present pension legislation, regulatory requirements, type of investment propositions that are available to the general public and how we determine how much someone can borrow (I could go on . . .).
Ironically, if we did these things, we would have no need to develop a simplified advice solution, as it would just be called advice.
Please let me know your thoughts in the comment section below. It would be great to hear from you directly. Simply email firstname.lastname@example.org and i’ll get back to you shortly.Mark Underdown