For a long time, the advice/guidance boundary was on the margin not just of advice and guidance but of pension debate. But today it’s hard to think of a more talked about challenge in the UK savings market than closing the advice gap.
Previous attempts have barely dented the surface (FCA clarifying the boundaries) or have fallen at the first fence (simplified ISA advice). The FCA’s latest attempt feels different and has the potential to benefit millions of customers in need of support.
The FCA have put now consolidated their thinking into three proposals:
- Clarifying the advice boundary – helping organisations be clear on how to deliver meaningful customer support without making a personal recommendation.
- Targeted support – enabling providers to deliver much clearer direction to customers to meet their savings and retirement needs.
- Simplified advice – targeted around a specific customer need which benefits from a personal recommendation but doesn’t require holistic advice.
In isolation the first proposal is unlikely to make a difference, but alongside the other two it can only help. Proposals two & three open up much wider opportunities for providers to help members, the most significant being targeted support.
Decisions around how much to save, for how long, and how to spend those savings sustainably in retirement are central to meeting these customer needs
The FCA has identified wealth accumulation and decumulation decisions as prime scenarios for addressing customer needs through targeted support. Decisions around how much to save, for how long, and how to spend those savings sustainably in retirement are central to meeting these customer needs.
On the boundary but no longer marginal
Far from being marginal, the FCA’s latest paper has a forward from Treasury Secretary Bim Afolami and as Tom McPhail puts it in a recent Laing Cat Podcast- ” it has the Treasury’s pawprints all over it”. Tom has a good description of the FCA’s approach as saying things “louder and slower, like a British tourist on holiday“. That is a first class simile and is in line with my reading of the paper.
It looks as if most adviser interest is around targeted support and it catches the eye for its innovation. We are all familiar with the Amazon nudge to take note of what people like us are purchasing. But it comes as a surprise to hear the FCA suggest that people would do well to follow the “wisdom of the crowd”. It makes a positive change to accusations that advisers encourage “herding”!
What is refreshing is that the FCA are allowing this anecdotal approach to point savers to a “definitive course of action”. This has historically been one definition of advice and it suggests that within the constraints imposed by the consumer duty, the “stronger nudge” is on the boundary of a recommendation.
Nathan Long of Hargreaves Lansdown calls targeted support, the “rocket boosters to make the consumer duty work“.
Targeted support also looks a good way for savers to validate decisions made about the products they are already using. The consumer is interested in knowing whether people like him/her take the kind of decision he/she is considering.
There needs to be courage and conviction for targeted support to work but there does not need to be the detailed knowledge of the clients’ circumstances. Knowing just how much information is needed to conclude what someone actually is like, is a matter that will great exercise compliance teams
Who will targeted support work for?
Targeted support looks like an innovation that works for the big firms operating outside the workplace. As McPhail crudely put it
“It helps Hargreaves Lansdown to flog more stuff,”
It certainly looks commercially attractive to larger advisory firms but not exclusively
It will find favour with workplace pensions and even the trustees and administrators of DB plans, all of whom face big challenges from savers with important decisions on how they get their pensions and pots paid to them,
Workplace pensions, provide the data needed to make generic statements about people. The key is to link what is known about a saver to what big data tells support staff about purchasing. But the risk is that the decisions most people take can be sub-optimal and not all defaults are value for money
Is Simplified Advice – the squeezed piggy in the middle?
Simplified advice clearly has its supporter. Vanguard’s Sean Hagerty has argued that the payment of fees for simple advice is a door opener for his business. I suspect that simple advice will prove popular for well-heeled but unsophisticated investors for whom Vanguard’s approach is designed. It is a product for the mass affluent.
But advisers seem more sceptical. They see the scope for targeted support as being wide enough to squeeze out simple advice in the mass market and they see advisers continuing to cherry-pick the wealthy clients who really need full holistic advice.
Everyone agrees that the conversation has a long way to run. However, I see the endorsement of targeted support as something that can be practiced outside the FCAs regulatory perimeter as encouragement to the support teams of workplace and non-advised non workplace pensions, to get on with what they do best, holding the hands of people like us.