By Fiona Tait, Pension Specialist
Royal London firmly believes in the value delivered to clients by financial advisers, not just for one-off events but on an ongoing basis.
This is a position we continue to hold in our consultation responses and external communications while always questioning whether there are ways in which we can help more of our customers to benefit.
Here are some of our ideas.
What is financial advice
Firstly we believe that the purpose of financial advice is to help clients plan their financial future, not to distribute financial products.
While a financial plan is likely to include the selection of suitable products, the adviser's main role is to interpret the individual needs of each client, then to design, implement and maintain a plan capable of meeting them. The provider's role is to deliver products which are designed to meet the requirements of several individuals with a particular investment goal.
Some providers believe they can deliver both products and advice. Royal London believes advice should be delivered by advisers and has no plans to step into this arena. We do however have some reservations on the current definitions of both 'advice' and 'independence'.
Advice v Guidance
A full, regulated advice service will include a recommendation. When the client says “Just tell me what to do”, a regulated adviser can answer this and takes on the responsibility for the action.
A guidance service provides the client with a lot of relevant information but the decision to act is made by the individual. “Do you understand that any action you take as a result of this call/interview is your own decision and that we are not liable for the consequences of that action?” should sort that out.
But there is the potential for services which deliver more than guidance and less than fully regulated advice. One suggestion is instead of more regulation on advice the FCA could regulate the financial products.
Rather than leaving it entirely up to the adviser to decide if a product is suitable for a particular client, the onus could be on the provider to clearly identify and describe the client types that their product is suitable for.
- The adviser's job is to understand their client and whether they fall into that category of investor.
- The provider's job is to ensure their product delivers what it says it will within the parameters that have been outlined.
This may in turn allow the introduction of a lower level of advice qualification which is appropriate only for these products.
Royal London believes this is an approach that should be explored, albeit for simple, lower-risk situations and subject to an overriding duty for the adviser to act in the client's best interests. We suggest the latter requirement should be strengthened by the introduction of a Fiduciary Standard.
Advisers who are tied to the distribution of certain manufacturers' products are not independent. Providing their needs can be met by the range of products on offer, the client may not be unhappy with this. However, the more complicated their needs are the less likely it is that a restricted solution will be optimal.
Royal London concur that the distinction between independent and restricted advice should remain, and indeed have expressed particular concerns about the potential for bias within vertical distribution models.
We are also concerned that the definition of restricted does not distinguish between advisers who can only recommend a single provider and those who can recommend any suitable provider but choose to operate in a particular field of advice, such as at-retirement planning (in other professions this would be called 'specialising', and probably is seen as a good thing).
This issue is of particular concern at the present time because of the large numbers of people looking to take advantage of pension freedom and access their pension funds but who are not looking for a full financial review. Clearly relevant factors need to be taken into account but the adviser could operate a more limited fact-find based on the actions being considered, which would reduce costs.
The FCA refer to this situation as 'focused' advice but there is a definite lack of clarity on the potential scope of focused advice or, crucially, any limitations on the liability for circumstances which arise from unrelated financial activities.
We believe focused advice could go a long way towards “facilitatate(ing) the establishment of a broad-based market for the provision of financial advice to all consumers”.1
Helping people find advice
Another issue facing individuals who find themselves in need of financial advice for the first time is just where to find it.
Royal London fully complies with the requirements to signpost our members to Pension Wise, and believe they have a very important role to play in helping people to understand the importance of the decisions they are making and identify situations where advice would be particularly beneficial.
This is a start but we are also looking into other sources of guidance, and have suggested a financial 'triage' service which could be used to assess the complexity of an individual's financial needs and direct them towards the appropriate level of adviser.
Finally, where there is a financial adviser in place2 we will always recommend that they speak to them before making any important decisions.
- Financial Advice Market Review: Terms of Reference, HM Treasury, 15 October 2015
- Royal London pension products are exclusively distributed via financial advisers