In a consultation paper outlining its proposals on regulatory fees and levies for 2015 and 2016, the City watchdog said it had taken on board comments made by concerned parties that, while a levy to pay for the guidance guarantee necessitated by the pension changes announced by George Osborne earlier this year made sense, it would not be fair for financial advisers to pay as much as the other proposed contributors.
“We accept the point made by respondents that financial advisers will only benefit if, following using the pensions guidance service, consumers seek advice from regulated financial advisers. We also accept that it is clearer that ‘product providers’ in the other fee-blocks are more likely to benefit as the monies (if used for investment) released through greater pension flexibility will be distributed amongst them,” the FCA said.
Under the new proposals, deposit acceptors (block A1), life insurers (block A4), portfolio managers (block A7) and managers and depositaries of investment funds and collective investment scheme operators (block A9) will all pay 22% of the total levy, and advisory arrangers, dealers or brokers (block A13) will pay 12%.
However, while there is no doubt that the potential benefit to advisers of the guidance guarantee is less, as things currently stand, there is equally no doubt that both the need and demand for good quality financial advice is only going to go up as the burden of retirement planning falls further onto the shoulders of individuals.
As the Pensions Policy Institute pointed out on Thursday in the first of three reports exploring the developments of how people access pension savings, “decisions about accessing defined contribution pensions are considered the most challenging of pension and retirement decisions and other major financial decisions from across the life course”.
Daniela Silcock, senior policy researcher at the PPI said that over the next ten to fifteen years, around 4 in 10 people approaching retirement with private pension savings in the country will have “medium to high levels of risk attached to their decisions”.
She added “While the new guaranteed guidance service will offer initial support to those who choose to take up the service and engage ahead of their retirement, it is unlikely to be able to deal with the full range of uncertainties and complexities around individual’s circumstances or direct them towards specific products or strategies for accessing their DC pension savings”.
Portfolio Adviser has already spoken about the RDR’s impact on the advice market for smaller clients, as well as some of the dangers within that.
Clearly, the one of the implications of RDR is that the hurdle rate for advice has increased. But, what the comments above highlight is that there is a ready and growing market of clients, if advisers can figure out how to service them cost effectively.
Haig Bathgate, CIO at Turcan Connell is one of those that believes that technology may hold some of the answers.
“Those advisers with a high cost base cannot advise smaller clients and you have lots of people are shunning the ‘Nutmeg’ idea, but it is a great idea and it is interesting that the FCA has been accepting of that systematic approach to advice,” he said.
Bathgate points out that while those people closer to retirement have got significant accumulated wealth, he is more interested in trying to capture those people in their thirties and forties, who are starting or in the middle of their accumulation phase.
“The future wealth is not being catered for properly. A lot incumbents have too large a cost base and are not using technology to their benefit and so are struggling to do so; we think that offers us an opportunity,” he said.
Adding: “If you imagine the likes of Hargreaves Lansdown as the Ford Focus of that kind of model, we want to be the Bentley, and what we are hoping to do is to make systematic the commoditised elements of the data capture, so that when the client engages with the investment manager, it is only on the value added stuff.”
Whether one takes the Ford approach or the Bentley one, or perhaps something altogether different one can’t help but get the sense that 2015 is going to be a very interesting year for the financial advice community. Some people are going to get run over along the way, but for those out at the front, there could be a great deal of open road beckoning.
