It is enough to make an IFA feel paranoid. While the regulator now plans to add yet another requirement to advisers when giving at-retirement advice, it is still seemingly reluctant to support existing policies that would help clients pay for advice.
The Financial Conduct Authority (FCA) announced on Monday, in its latest retirement outcomes review paper, it will make advisers consider ‘ready-made’ investment pathways when making recommendations to clients entering drawdown.
But there was scant enthusiasm for a ready-made route to advice that already exists: the pension advice allowance (PAA).
The PAA was introduced in April 2017 and allows savers to take £500 from their pension to pay for financial advice. Scheme members are able to take up to £1,500 from their pot, £500 per year for three years, if facilitated by their pension provider
Respondents to the FCA’s retirement outcomes consultation said a signpost to advice and the advice allowance should be included in the ‘wake-up’ packs providers must send to policyholders ahead of retirement.
But the FCA turned the suggestion down, saying the allowance was already signposted in the Money Advice Service (MAS) literature that is sent along with the packs. In reality the MAS leaflet is a pretty hefty volume of which 13 short lines on page 32 are dedicated to the PAA. Though there is a link to the MAS’s retirement adviser directory.
Hardly any providers offer the PAA, claiming lack of demand. As far as I can tell only Hargreaves Lansdown (which has its own advisers) and LV= offer it currently.
IFAs are also hard pressed to think of a time when a client asked to use the allowance.
But that is because of a confusion, possibly a convenient one for providers, between the PAA and adviser charging. A pension scheme can make a payment to an adviser already, but with adviser charging the advice must relate to the pension scheme.
Even if that was not a big deal, the reason advisers do not hear much about the PAA is because the PAA is all about getting people who would otherwise not look for advice to do so.
An adviser talking to an existing client would, perhaps, more naturally look at the adviser charging route or already knows the client is happy to pay their fee and has the means to do so. But the target PAA client is someone who has never had advice before, and may not plan to do so again, at that moment at least.
And yet, I do believe it would be tremendously valuable to a significant part of the population.
Before the pension freedoms the proportion of drawdown bought without advice was 5%. It is now around 30%. Another stat from the FCA: of those who did go into drawdown without advice, 33% are wholly holding cash.
Many of those pots have been in cash for over a year. The FCA has also found 72% taking drawdown without advice invest in only one fund.
All this leads me to conclude the PAA is a good idea. But it needs to be properly positioned, properly promoted and properly understood. And if all that happens, it could drive accessibility to advice and enliven the retirement market.
I have boiled it down to seven key calls to action:
- Make it compulsory for providers to offer it (but make it simpler to administer).
- Make £1,500 available all in one year, not spread over three.
- Include promotion of the PAA in the one-page wake-up pack, currently proposed by the FCA. And all other wake-up communications after that.
- Explain the difference between the allowance and adviser charging.
- A list of advice firms who will provide a holistic financial plan and implementation for £1,500, with service options for £1,000 and £500. Sometimes the allowance could just help subsidise the cost of advice to make it more affordable. Understanding what a core service would look like and what is extra would help the customer find the right service/adviser, and help advisers price accordingly.
- A voucher system to help people shop around. Something to say: I have £1,500 / £500 to spend on advice who can help me.
- An awareness campaign paid for by the Single Financial Guidance Body, which is funded via levies on the financial services industry.
Last year a couple of thousand free financial planning sessions took place as part of the Chartered Institute for Securities & Investment's Financial Planning Week. Sessions were about an hour long, covered the basics, and time was saved by making sure clients came well prepared. Some 46 firms took part.
Planners offering the sessions told us they had a large uptake of interest. They ran the surgeries to help people understand the financial planning process. Planners told us the initiative was ‘incredibly important’ and the one opportunity some people get to seek help. At the very least the sessions help put people on the right path.
The PAA is designed to help people get access to all these things, without asking advisers to do work for free. What’s more, it is good to go.
This year the FCA will review the retail distribution review. Access to advice, and the so-called advice gap, will undoubtedly be something it will talk about. It would be great if the regulator and government could try to make the PAA work in a way that could make the value of advice better and more widely understood.
Doing so would create a healthy market of advisers pitching and pricing services to meet these clients’ needs.