Jelf Employee Benefits head of benefits strategy Steve Herbert explains why the advice industry - as opposed to product providers - should be cynical about the FCA’s claim that it should pay for the guidance guarantee because it will benefit from it
I have difficulty in really squaring how advice firms will “potentially benefit” from the guidance guarantee – so would question why we are down to pay for it.
The consultation states:
3.1 The Government consultation response sets out the role for us in collecting the levy to fund the provision of retirement guidance. This includes the design of the levy so that it is raised from the population of firms that will potentially benefit from the retirement guidance service in terms of more engaged and empowered consumers, making better-informed decisions about how to use their pension pots in retirement.
But advisers should be cynical of this reasoning for a number of reasons:
1. The industry will only receive referrals from the guidance guarantee where the outcomes suggests they need our help – as opposed to the current system whereby most approaching retirement are now encouraged to take some advice as to annuity options etcetera. We may therefore see a fall in numbers, at least initially.
2. The amount of money moving from pension to retirement income options may also fall – with more of the available retirement fund being used for other purposes, such as paying off debts.
3. Although the customer that is referred may well be “better–informed”, it does not follow that this in any way reduces our compliance duties and costs. We will still need to go back to first fact-finding principles to make the process compliant.
4. What happens if the findings of the guidance vary from the industry recommendation? This is likely to happen as the guidance guarantee will request certain details, but the consumer is not required to produce them. We may therefore have the guidance guarantee giving recommendations that do not tally with industry recommendations based on a greater depth of knowledge. Will we then have to spend further time and cost justifying the discrepancy before the product can be put in place?
5. Likewise, the guidance guarantee will be limited in scope, whereas the range of investment decisions for savers is now limited only by the number of investment opportunities in the world. This will also lead to possible miss-matches between the guidance guarantee advice and that of a regulated adviser.
6. The DB members who seek to access new flexibility in DC by transferring will have to take regulated advice. But given that most transfer systems will currently throw up a “don’t transfer” recommendation, where does that leave the adviser? If we subsequently force through transfers on “insistent customer/ execution only” basis, then this makes the point of taking advice moot. It also exposes the industry to retrospective action should the rules change again in the future.
The bottom line is that unless the FCA significantly changes allowable compliance structures to allow for some of the above, the guidance guarantee is likely to result in more and greater compliance challenges and risks for advisers – and we are being asked to pay for this privilege also.
Jelf Employee Benefits head of benefits strategy Steve Herbert