The FCA has been conducting a kind of crypto-consultation on what it calls its guidance sales model. The model has had some exposure in the trade press and there are rumours that the Treasury will insert proposals into the Queens Speech in May. This article is based on my personal opinion of the value of both advice and guidance having been regulated to give advice between 1988 and 2005 and being regulated to make guided introductions today. I should say that the Guided Sales Model the FCA has in mind relates to pensions and specifically the decisions people take when working out what to do with DC pension pots at the end of a savings career.
I appear to be in a minority as I’m confident in both understanding and articulating the difference between guidance and advice. Advice is the delivery of a definitive course of action while guidance is the provision of factual information to help someone decide. You might call advice an instruction and guidance an influence.
In my early days as an adviser (1983-1988) before polarisation, I preferred to call myself an insurance salesman than a financial adviser because that seemed easier for my clients to understand. I told them to insure themselves against living too long, dying too soon and losing their income through ill-health. Investment advice started off simply enough – you either bought a guarantee with no profit or you invested with-profits, the latter being the racier option. In my earliest days we were still selling products that paid a commission as a percentage of the sum assured rather than the annual premium.
What remains to be seen is whether the Guided Sales Process is acceptable to the man on the Clapham Omnibus
This wasn’t so far away from the “Guided Sales Model” proposed by the FCA where a representative of a provider’s job is to encourage decision making by providing factual information.
The critical success factor of the guided sales model is that the client or customer takes a decision of some kind, even if that action is a positive decision to do nothing. My criticism of Pension Wise is not that only 14% of potential customers use them, but that of the 90% of those who use Pension Wise and say that it is a great service, so little is known of what change Pension Wise made in decision making.
The reality is that Pension Wise cannot record a decision as it has no application or switch forms, no direct debits or cancellation notices. In short it is not a guided sales model but an information booth. So when the chips are down and hard decisions need to be made, we hear very little about Pension Wise. In my 5 years providing support to steelworkers at BSPS, I have not had one conversation that involved MaPS or Pension Wise.
By contrast, the FCA – in its guided sales model, seems to be advocating a classic sales funnel. Certainly, the language is more akin to the sales training that I received in the early eighties than anything I have read in COBS. This appears to be a recognition from the FCA of the scale of the job of work to be done. With 700,000 savers going through a crystallisation event each year, the need to process inquiries in an efficient way is in stark contrast to the leisurely progress of a Pension Wise interview.
This may sound shocking to advisers who have been weaned off product sales, but we must remember that all the customers who would use the Guided Sales Process have already purchased and may be considered to be experienced investors, at least in terms of the time that’s elapsed since they made their original purchase.
This industrialisation of guidance is of course only possible if the outcomes are deemed to conform to the provider’s consumer duty. Here the investment pathways play an important part, being guided outcomes that are deemed the provider’s best shot at meeting the various needs of the average consumer. However, this may be the Guided Sales Model’s weakness as consumer have so far found little appetite for following the pathways, to use Rebecca O’Connor of Interactive Investor’s nice phrase, for them “the only pathway is their own”.
Undoubtedly there is something missing and for those of us who have been schooled in insurance rather than wealth management, that something is the certainty of a pension that lasts as long as the customer does. If the only option that gives that is the dreaded “annuity” which the Chancellor warned “nobody would ever have to purchase again”, then there appears to be a product missing from the pathways, specifically something that looks like an annuity without the guarantees. To use the parlance in place when I started in my sales career – a with-profits annuity.
This phrase is often discussed when the conversation turns to CDC and may well find favour again, possible as a “pooled annuity fund”.
So where does this leave the financial adviser. Well probably on the other side of an increasingly polarised argument where insurers return to selling insured products and wealth managers sell bespoke solutions. What has changed since the 1980s is that most advisers now know how to manage wealth and do so effectively. The nature of their relationship with their clients is much like that of private client stockbrokers 40 years ago.
The gulf between those who consciously buy financial advice and those who are sold insurance policies through a Guided Sales Process returns us to the point at which I started with the man from the Pru being replaced by a bot. This may seem dystopian but my memories of the early days of my career suggest that some things don’t change, good quality advice has never been generally available nor is it likely to be. Which is just as well for advisers.
What remains to be seen is whether the Guided Sales Process is acceptable to the man on the Clapham Omnibus, or whether he will demand what he thought he’d paid for, an income from his savings which amounts to a “wage for life”. In any event , advisers have nothing to fear from stronger guidance, it simply shows advice to its true advantage.
