Simple Advice – Not quite so Simple

I’ve heard many people discuss the need for simplified advice, yet how can the advice be appropriate without taking account of a client’s personal and financial situation, their tax status and the options available to them etc., in essence, without providing the prevailing advice standards?

I understand the need for people to obtain financial advice and I’m fully aware that under the present environment advice is complicated. This has made it almost impossible to offer a full advisory service for clients of normal means on commercially viable terms. Surely though we should be looking at what is making financial advice so complicated and costly, rather than creating an additional structure where people will not actually receive anything that will resemble thorough and unbiased advice.

The causes of many of the complications in providing advice are related to legislation and the constant changes to it.

Changing tax and pension rules over the years, without giving due consideration to the prevailing rules at the time, have resulted in an ever increasing minefield that an adviser must navigate on behalf of their clients.

The only situation where someone can properly receive advice for a situation that could be described as simple is before they have obtained any financial products.

A few years ago, there was a great opportunity to make the advisory needs for newcomers to pensions relatively simple, yet the bureaucrats, as they tend to, decided to create a complicated structure for new pension provision called auto-enrolment.

In my opinion, this now makes a simple advice solution impossible, as any long term pension saving recommendation, must firstly assess the adequacy of the individuals employed scheme available to them and then, if they decide to go elsewhere, they need to convince the employer to incur further cost by dealing with the auto-enrolment reporting requirements on an individual basis, hardly something that they will be keen to do.

Under this model of arranging pensions via an employer, there are now thousands of people with a pension that aren’t invested appropriately based upon their own circumstances and views, yet we’ll overlook this for the time being! At least they are going to have something other than a state promise. I do wonder how the FCA continue to bang the drums on individual investment risk, while ignoring such widespread shoehorning into one-size fits all solutions that is happening with auto-enrolment.

In future, many individuals will end up with numerous employer schemes, all of which will be different and how can you simply decide which is the best one to keep, or whether they should all be moved elsewhere. I believe that under a simplified advice model, providers will effectively just flog their products directly under the guise of advice.

Do we really want to make it easier for providers to flog their products directly? Whilst there are now many attractive and simple offerings available to the public, do you really feel these will be the ones that will end up on the computer screens of would be financial consumers, or in major banks if they offer simplified advice? Money buys marketing space and higher charging products can afford better and more widespread marketing. Consumers need someone on their side of the table filtering out the noise, hype and sales.

You may have gathered that I believe simplified advice will be a sham and won’t actually be advice at all. For the supporters of simplified advice, I am curious to know, what exactly should we ignore about a clients personal and financial situation to make the job of providing advice easier?

Presently, a huge amount of the general public is essentially priced out of value-added financial advice and I feel that something should be done about it, yet I feel we are looking in the wrong direction.

It is my opinion, that there is a huge need to simplify the tax system, historic and present pension legislation, regulatory requirements, type of investment propositions available to the general public and how we determine how much someone can borrow (I could go on . . .) yet ironically, if we did these things, we would have no need to develop a simplified advice solution, as it would just be called advice.

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One thought on “Simple Advice – Not quite so Simple

  • Hi Mark
    I completely agree!
    Simplicity and choice are the opposite of each other. In most areas, politicians have opted for choice, rather than simplicity. I’ve never really understood why. Do I want to choose which hospital I get to have an operation at? No. I just want to get my operation done competently. I think the same goes for pensions and financial products.
    The trouble is that if you opt for simplicity, some people will lose out. So, when pensions were simplified, people were allowed to keep their enhanced tax free cash sums in occupational pensions.
    Pension advice would be a lot simpler if choices were removed. Take away the tax free lump sum, force people to take benefits from state pension age (and not before), only give them the option of an increasing annuity, and restrict investment choice to a UK tracker and a cash deposit; then simple retirement income advice becomes possible.
    But somebody would lose out.
    And that’s not allowed in a society where individual choice takes precedence over the greater good.

    By the way, simplified advice is just product sales. For some reason, in financial services, product sales never gets called that. In most walks of life, if you want to buy something, you go to a sales department, but not in financial services. No, if you want to just buy something, you have to ask for “execution only” (which sounds like a department of the Mafia to me).

    Reply

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