Personal Finance Society chief executive Keith Richards talks to Helen Morrissey about advisers' role in delivering the guidance guarantee and how the Budget could herald a new approach to long-term saving.
What do you think of the recent Budget announcements on retirement income?
It's fair to say that what happened in the Budget will go down as a stroke of genius from the Chancellor's perspective. The introduction of greater freedom and choice is a good thing.
This greater freedom at retirement will lead to more consumers wanting to seek professional advice. The news is very positive and will lead to increasing awareness of, and confidence in, the benefits of quality advice.
We believe the changes could lead to a whole new shift in the savings culture in the UK as people's attitudes to long-term saving become more positive. The industry has endured its fair share of controversy – with pensions mis-selling, for instance – and we hope this greater freedom will do much to encourage people to save more actively.
We have heard lots about people potentially cashing out their pension and buying a Lamborghini, but the idea that a large proportion of the 400,000 people retiring every year would do this is ridiculous. If people have been responsible enough to save, then why would they do such a thing?
Overall, we believe the positives will far outweigh the negatives. Let's also not forget the regulator's thematic review which came hot on the heels of the Financial Services Consumer Panel saying it was very concerned about people going down the self-service route at retirement and potentially making the wrong decision.
We understand that greater access to guidance and advice is needed if we are to prevent people from making the wrong decision. While choice does increase risk, on the whole this move is better for consumer outcomes.
So you believe these changes could bring about a shift in how the general public views long-term savings?
We must not underestimate how much attention people are paying to these changes. These could prompt younger people to start saving. Cultures take time to embed themselves within society, but I do believe it will be passed on and we will start to see more positive attitudes coming through.
If you look back 30 years, then we had a far better savings culture than we do now. But over the years, this has been eroded by successive governments.
We have had issues raging for a long time, such as the open-market option, but do consumers really understand them? If you confuse the consumer, then they won't want to trust you, and this leads to greater levels of inertia.
It is equally unfair on some pension providers who take their responsibilities in this area very seriously and want to do the right thing.
When you think about it, a large percentage of the general public can name only two or three insurers, so it is counter-intuitive for them to look to go elsewhere when it comes to exercising their open-market options. They want to purchase their annuities from trusted brands.
We need to see consumers more ably directed towards sites that can help them, and there is nothing to say that providers cannot be involved at an information stage.
Our very first proposal was actually in response to the regulator's retirement income market study, which was ahead of the Budget. We recommended the introduction of more effective guidance and, where people need advice, a voucher scheme should be introduced by which they can pay for this advice.
This could be funded by the redistribution of regulatory fines. Subsequent to that, the Chancellor made this Budget announcement and the Guidance Guarantee was a key focus.
In his speech, the Chancellor referred to face-to-face advice. He meant guidance and it does not necessarily have to be face to face. If you read something, it is information. But if you are told it, that's when it becomes advice.
The whole guidance/advice thing is basically how we distinguish between non-regulated and regulated advice, but by and large the general public does not make that distinction.
The opportunity we have is rather than confuse people with this, we need to help them understand the difference between advice and professionally qualified advice. This brings big opportunities for the advice sector as it enables us to put together a consumer-centric solution that builds trust and engagement.
Under the new process we have put together, there are three stages. The first would look like a range of generic information and leaflets.
Then there is a guidance stage around providing more focused guidance around someone's various considerations and facts people need to consider before making an informed decision based on their needs.
The third stage comes when the person decides that they want to take further action, whether that be telephone guidance, execution-only or even fully fledged financial advice.
The government has made a commitment to the Guidance Guarantee and we must be careful not to let perfect get in the way of putting a good service in place. We need a straightforward solution, and we have refined our thinking around a National Guidance Service similar to the NHS.
Within the NHS, the best qualified doctors run their own private practices in addition to their work for the NHS. We can use a similar model to help people get good quality information on retirement.
We will need a set of standards based around this guidance and there is a huge opportunity for the industry to engage with that. It will also help people to engage with the need to get involved in the financial advice sector. As it stands, many people are wary of the advice sector and have concerns, for instance, that an adviser will overcomplicate their concerns to justify their fee. I know many advisers would be offended by such an opinion, but nonetheless it is a view that people do hold.
Part of our initial and subsequent proposal was the introduction of a focused retirement process, which offers focused advice counselling for a fixed fee.
This would give people a greater sense of what they can expect and what they can expect to pay for it. It would help people to recognise the need for advice if they wish to do more, while others will simply feel more informed about their options.
Very few clients come into this believing they need an ongoing service. To begin with, it is very transactional. They don't want to commit to a long-term contract until the firm has gained that person's trust.
So while some people will regularly engage with advisers, others will dip in and out. A lot of information will be delivered via technology, and we see the Money Advice Service and The Pensions Advisory Service already using technology, as well as the telephone, to engage with people.
The guidance service should be seen as a go-to point to better inform the customer. The next stage could either be straight to transaction or you decide to go down the professional advice route.
So what happens next?
We are part of the Financial Conduct Authority working group set up by the Treasury and we will go to this group with our recommendations. We believe the model we have put forward is a more joined-up, collaborative process that is based around people's needs.
Guidance is important, but we need to ensure the hand-off into advice is seamless. I think those who provide guidance over the phone sometimes struggle with that hand-off process. We must contribute to this process.
We have had positive feedback from advisers so far on what we have proposed. I suspect there will be firms operating under different models who will want to offer something different, so it is difficult to gauge how many advisers would want to be involved.
There is no one-size-fits-all approach – a number of firms do offer something similar to the focused retirement service. While others are working out that if they can clearly define a process, then they can clearly define a cost.
Some users will become long-term clients while others will start out on a more transactional relationship. It is an interesting process because the advisory community has been steered away from being transactional in its approach towards being more serviced-based.
However, there are clients out there that do want a transactional service – at least to begin with.
CV: Keith Richards
• Keith has been chief executive of the Personal Finance Society (PFS) since May 2013. He has more than 30 years' experience within financial services and has operated at a senior level throughout most of this time in various roles, spanning both manufacturing and distribution.
• He initially established a strong media profile while representing Tenet Group as group distribution and development director where he played a key role in the development of their IFA client proposition and development of both appointed representatives and directly authorised support services.
• Keith was also accountable for distribution strategy, the management and delivery of business development, events, training and PR functions. These included professional development programmes, regulation, qualification and skills training.
• Actively engaged in the promotion of financial services within the UK, he has contributed to the boards of both AIFA and AMI. He is chairman of TISA Exco for Adviser protocol and has represented the intermediary sector over many years on a number of panels and strategic leadership forums, including sitting on the PFS RDR Qualification Committee.
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