David Trenner outlines why he thinks financial advisers should support the guidance guarantee
There has been plenty of coverage in the media and on Twitter about the fact that the Financial Conduct Authority (FCA) proposes to levy financial advice firms to meet the costs of providing the guidance guarantee.
People have said that they do not want to pay for the service provided by The Pensions Advisory Service and Citizens Advice, even though they like the idea of people getting guidance on their retirement options.
There is no question that guidance, if delivered properly, will raise the profile of financial advisers and help to build public confidence in our services.
No business can survive without new clients
One prominent Tweeter posted: "Fed up with non-advisers telling me how advisers are going to benefit from guidance enquiries when they are not paying for this debacle."
Well, let me tell you as an adviser how I think we will all benefit. The FCA issued a consultation in July on the guidance guarantee.
It stated that scheme trustees and contract-based pension providers will be required to signpost their members and customers to the guidance, ensuring that they are aware they are entitled to the guidance and how to access it.
So, thousands of people who would have taken up the holding scheme’s annuity offer without thinking about it will now be signposted towards guidance. This will lead to better outcomes for at least some people.
At this stage, there will be little in it for advisers, except that getting people to start thinking is likely to lead some of them to think about the need for advice, and they might realise that they need advice on more than just how to take their retirement income.
The FCA paper goes on to say: "The guidance does not replace financial advice given by regulated advisers, nor does it replace communication programmes run by trustees for their members or contract-based pension providers’ communications with their own customers. We expect that many people will continue to consult a financial adviser.
"Indeed, it is intended that the guidance will signpost people to additional specialist help where appropriate, including, for example, regulated financial advice or debt advice."
The Budget changes have caused many employers and scheme trustees to consider what they can offer members over and above the guidance guarantee.
Many are recognising that their default funds, typically targeted at providing tax-free cash and annuity at normal retirement date, will fail members who go into drawdown as well as those who decide to "cash out" to buy that Lamborghini!
Ongoing need for information
The need for advice in the years before the guidance guarantee kicks in has led to considerable interest in services such as our recently launched Pathways, and there has also been interest in our "Annuity or Not" tool which can help people decide how they might draw their retirement income when the time comes.
But you do not have to be a retirement income specialist to see the attractions of the guidance guarantee to financial advisers.
Historically, the employee benefit consultancy I worked for had a linked personal financial management (PFM) company.
The PFM consultants offered pre-retirement counselling to employers and trustees in the expectation that this would generate opportunities to advise on the investment of tax-free cash.
These opportunities will re-emerge, with pension scheme members who look to cash in their funds coming to the realisation that without an annuity, they need some way of generating more income than the paltry returns they will get from their bank accounts.
Those who do not support the guidance guarantee may be concerned that many of those signposted to financial advice will not be able to afford to pay for the advice. They may feel that they will be pressured into carrying out pro bono work, using their precious time without earning any fees.
Well, this might indeed happen, but so what? As advisers, we often receive enquiries from people who cannot afford to pay our fees, but we also receive enquiries from people who can afford to pay us and indeed are happy to do so.
No business can survive without new clients, and we welcome the possibility of getting more new clients as the public understanding of the importance of financial advice increases.
David Trenner is technical director at Intelligent Pensions
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