Written by AJ Bell head of retirement policy Tom Selby
Recent events have exposed some pretty fundamental and dangerous misunderstandings about the risks associated with different kinds of pensions. Problems with a specific type of investment held in defined benefit pensions have sparked fear and panic about entirely unrelated financial issues.
Callers to radio phone-ins have been confused about whether or not they might lose their entire pension, for example, while others were shocked to find that their retirement pot was invested and could go down as well as up.
Savers and investors are clearly crying out for help, but at the moment lack of clarity over the advice/guidance boundary is holding firms back when communicating with customers. We need to reset the relationship between industry and regulation, with a clear focus on ensuring good outcomes for consumers, in line with the core aim of the Consumer Duty.
Full-fat advice remains the gold standard, and we need to encourage as many people as possible to take this route. But we know lots of people cannot afford such advice, or simply choose not to take it. If a simplified advice model can boost the number of people taking regulated advice that would be a good thing, although many are still likely to be unwilling to pay a fee, even if it is set at a relatively low level.
Focus therefore needs to be trained on ensuring firms communicating with customers are able to help people make better decisions. This isn’t about pushing back the advice/guidance boundary, but instead being clearer about exactly where that boundary sits. At the moment, non-advised platforms, employers and others are held back by a fear of straying into advice.
We hope the FCA’s review of the advice/guidance boundary moves at a rapid pace and considers solutions that meet the scale of the challenge. Given how hard-set the status quo has become, there is a strong argument for the Treasury leading reform which gives firms the confidence to communicate with customers in a more meaningful, effective way. But finding a way through the impasse needs to be viewed as a priority and we need a specific timetable for delivering workable solutions.