Plans for Sandler's range of stakeholder products have raised the spectre of information-only produc...
Plans for Sandler's range of stakeholder products have raised the spectre of information-only products again, despite it being clear that the government's information-only stakeholder pensions did not work. Some advisers might be concerned that this is another nail in the coffin for the industry. But as it stands, this "new"range is unlikely to be any major threat to the IFA's livelihood, because the government appears to be digging its own grave.
Treasury and DWP officials have four major problems which they must sort out if they want to produce the perfect product. But unless they back down on the key element of allowing advice to be attached to these products, it will be impossible to solve the bigger problems.
* The first concern is the government is desperate to get people into any form of long-term savings or pensions vehicle because the burden on the Welfare State is becoming too expensive. Officials are keen to shift that burden onto consumers as quickly as possible so it can allocate resources elsewhere.
* But that leads to the second problem. No amount of education or persuasion will encourage people to put money aside for a rainy day unless they are given a decent incentive to do so. However, doing that will cost the government yet more money. Stakeholder has proven this to be the case, even though the DWP deems stakeholder to be a success. Around 1m stakeholder accounts have been opened since their launch, but only 15% of those receive contributions from employers.
* The third problem is evidence suggests products are sold to consumers, they are rarely bought. Yet selling products will mean the need for advice, which the government has made clear it is not prepared to see advice financed through product sales. Either the product has to be bought straight off the shelf without advice, or the government has to relent somewhere.
* The fourth and final problem is unless the government is prepared to accept advice is needed, a greater threat of misbuying looms large which, aside from becoming a major vote loser, would leave consumers without any way of clawing back the money they have lost. Even the government could not so naïve to think consumers can make crucial financial selections on their own.
All of this could be solved if the UK had simple, information-only introducers, says the Treasury. Yet consumer bodies have voiced concern about developing such a network if those giving the advice are not as qualified as IFAs.
Problems with the sale of stakeholder pensions have proven that it is not possible to give information-only because the line between information and advice is so fine. Employers were expected to give information about schemes, but the real questions employees would ask cannot be answered because they have no-one they can ask. As a result, employees don't sign up because they don't know whether it is a good idea to do so.
Unless the government is prepared to back down and allow the use of financial advice, rather than information, it will never achieve its aim of getting people into suitable savings products. Assuming this is their main concern, either charging caps will have to be moved eventually or the cost of advice will have to included some other way in the sale of products.
Given the choice, which will do you think be the government's greater priority - getting people into safe products and removing the financial burden on the Welfare State, or shutting the IFA sector out of product sales?
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