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This morning, I read an excellent piece in NMA where Alan Higham said that MAS needs to carry out an independent audit of the advisers listed on its planned retirement advice directory. Whether it is an audit or some form of certification, I know not. I do know that folks with less than £50k, typically, in their pension pots, should not be referred to any adviser. They should only be referred to those who have the competence to offer this somewhat specialised advice; and they must demonstrate that they are willing and able to offer it at a sensible price.
I have interviewed many hundreds of advisers, and guess how many I have met whose proposition includes advising people with small pots whose main issue is ensuring that the money does not run out before life does? You might have guessed – nought, none, zero, zilch!
In our last round of research, with the exception of 4% of respondents who offered corporate advice and dealt with DB and DC schemes, not one suggested interest in annuity business. The typical response was “we write a couple a year.”
Most IFAs have a long and detailed process. They are either financial planners or investment advisers. There processes are so expensive that fees have typically risen to 80bps and often to 100bps per annum. Indeed, one adviser told me on Tuesday that at higher levels, he reduced his fee to 125bps! These ad valorem fees are based on sums on typical portfolios of £100 – £500k. In addition, initial fees tend to start at 3% or a flat fee that might be from £1,000 – £2,500. How on earth can such tiny portfolios be profitable to them.
My personal view is well known. My work on benchmarking the adviser business, jointly authored with the estimable Michelle Cracknell, is available free* (or at no cost as many advisers appear to prefer).
When we published, I received some delightful, charming and largely unrepeatable comments from some of our anonymous, professional financial advisers. Before anyone starts down that road again, please come up with a proposition that will deliver appropriate advice at an appropriate price to those with portfolios of £20 – £50k – a précis will do.
Advisers in mass affluent and HNW markets must ensure that costs are reduced by cascading work down the line in order to stay competitive in tomorrow’s world. Out of over 40 award entries I examined last week, only one asked potential clients to complete a fact find online – saving the client probably around £500, as opposed to the usual process where a qualified adviser spends hours asking the questions at their published charge out rate.
The FCA now recognises that advice can be 100% online and automated. It recognises that simplified advice is necessary; it will now accept a hybrid proposition. Hopefully, they will soon join the rest of mankind (and George) and recognise that guidance and advice are the same thing! OK, perhaps that is too much to ask. Advisers with innovative ideas and propositions will offer better advice at lower cost.
The new ‘at retirement’ market is a different proposition. If advisers wish to offer advice (or guidance) to typical retirees with small pots, they are going to need expertise, technology, scale and capital. Then, there will be no guarantees. People like Alan Higham have built businesses that can address specific markets on a mass basis. They have the know-how; they have the reputation and the propositions that are required to attract investors. They are rare.
I just do not understand why there is so much ranting (I know, I know!), by those who just should not give a proverbial Clark Gable.
In a dozen or so comments below the article I referred to, the only reference to the client was an anonymous adviser (sic), who said, “I have to have the correct qualifications to advise and if I am a bad egg, the FCA will fine me, put me out of business and the FSCS will cover the client.”
Sadly, of course, this is not the case – the FCA rarely put advisers out of business.
Let us be clear, passing a few exams, most of which are multiple guess, does not qualify an adviser to put a client in a situation where their only recourse is the FSCS, there are small matters such as duty of care and TCF. It is time the good advisers condemned the anonymous, the noisy, the selfish and the incompetent so that the sector can start feeling some pride in what it does.
And, of course, it is quite ludicrous that these same IFAs should contribute to the cost of the guidance, or is it advice? On that, at least, we might agree.