Mind the Gap
The financial advice sector has seen a great deal of change over the past few years and with a general election on the horizon, there's an element of uncertainty in the air. Yet while change is needed for the financial advice sector to evolve, there is a risk that if change is conducted too quickly or is disjointed then we end up focusing on implementation rather than the desired outcome - a healthy, vibrant and professional financial advice sector.
Take the government's new guidance service on pensions, Pension Wise. The service is designed to fill a gap for those consumers who currently have no access to advice, but need to make decisions on accessing their pension since freedoms were introduced in April 2015. Following a period of uncertainty over the service's parameters, we now know the service will not give advice, recommend specific products or providers. It will, however, give guidance on basic financial options and provide a directory of IFAs for consumers with more complex pensions decisions to make.
While well meaning, it's an approach that does not take into account the current financial advice landscape. Apart from the fact that, unlike IFAs, the service will be unregulated and offer no redress if clients make bad financial decisions post-guidance, it's an approach that - wittingly or unwittingly - equates simplicity to 'free' and complexity to 'cost'.
The introduction of transparency in the market place means we know this is not the case. Whether a consumer takes advice from an IFA, goes direct to a provider or takes the DIY online platform approach there are costs involved. Equally, a simple yet bad financial decision has the capacity to wipe out a modest pension pot. Consumers need some way of putting these different costs into context and the Pensions Wise service is in a good position to educate consumers on these issues if it took a more forward-thinking approach.
Clearly not all consumers will be able to pay for financial advice, but better guidance on cost versus service could ultimately help the estimated 57% of the population who currently don't take financial advice, according to 2013 research by Compeer, make better long term financial decision.
For our part, IFAs need to ensure that services offered justify fees charged in terms of quality and relevance to consumers. It may be the advice gap is not as big as we think.