The Financial Conduct Authority, the regulator of retail financial services in the UK, issued two documents this week, both of which are important for consumers. Both have the potential to influence the delivery and content of financial advice to consumers and both could have an impact on your important long term financial decisions as a consumer.
One paper is a fast reaction from the FCA regarding the recently announced changes to pension benefits; the other is a scheduled paper assessing the implementation of a specific part of the Retail Distribution Review, the charging of fees by advisers. The two are linked and both illustrate differences in policy between the government and the regulator which could leave the recipients of financial advice caught between conflicting policy directions.
In the recent Budget the Chancellor announced an almost total relaxation of restrictions on how pension benefits are taken. From April 15 it will be possible to take your entire money purchase pension pot as a lump sum (final salary schemes will have to wait for their own specific piece of legislation). Interim measures between now and then allow for phased relaxation of the rules. Hence the Chancellor’s war cries of ‘No more annuities’ and ‘Responsible savers won’t go and blow it on a Lambo’.
In somewhat different vein, the FCA issued a guidance paper (FG14/3) on 9 April 14. On the face of it is no more that a reiteration of the requirement to incorporate the changes into advice processes and ensure clients are aware of the changes, especially those who are directly affected.
However, some of the wording in the document indicates the FCA is concerned. The emphasis is on meeting Principles 6 (having regard to customer’s interests and treating them fairly), 7 (clear, fair and not misleading communications) and 9 (suitability of advice). They talk about monitoring closely new retirement products.
It does not take much to realise the FCA is anxious to ensure client’s long term financial security is maintained (preferably through the guaranteed income of an annuity) and that pension pots are not simply drained for reinvestment in some new fangled retirement product (or a Lambo). Hence the conflict with the Chancellor, who no doubt would be happy to see a short term boost to the economy from a wall of pension money hitting the shops, as well as a short term boost to tax receipts (most of this new money would be taxed at 20%, and some at 40%, plus the VAT on purchases).
The other document (TR14/6), a thematic review into adviser charging, concludes that nearly 75% of financial advisers are not providing adequate information on the cost of advice. In particular many firms are ‘failing to confirm the specific cost of advice to their individual clients’. In other words, firms are still talking percentage of assets or pounds per hour, without actually stating how many actual pounds the advice is going to cost the client.
(As a side note, I have always made clear to clients in straightforward pound terms, the cost of our services at Planning for Life, be they the cost of the initial planning service or the ongoing continuity programmes)
So what is the conflict here. One of the aims of the Retail Distribution Review was to make it clear to consumers that financial advice is not free, hence the strict disclosure requirements. Now we have the Government clouding the waters by talking about free guidance for those approaching retirement!
Right hand, left hand…
So as a consumer, you need to be aware of these issues and, if seeking advice, especially about retirement, ensure your interests are at the top of your adviser’s agenda, and that you get a clear description of fees in pound terms. Any adviser who helps you plan with the use of lifetime cash flow programmes where you can assess your different options and make an informed decision will be particularly useful.
Finally, consider your own situation in the short and long term. We have to be responsible for our long term financial security as well as our short term goals and desires. Allow your planner to help you balance the long and the short term and utilise your pension resources to best effect here.