December saw Pension Wise released statistics that shockingly revealed that a Pension Wise guidance session costs £496. This is almost three times more than what qualified financial advisers can typically charge for an hour long session, according to unbiased.co.uk. (isn’t this an own-goal for Pension Wise?)
Understandably, this news has riled the adviser community. After all, advice firms live in a world in which they are required to swallow the increasing costs of regulation, specifically the Financial Services Compensation Scheme (FSCS) Levy, which sees firms authorised by the PRA and the FCA paying through the nose for the mistakes and malpractice of others. Certain firms have this year reported FSCS levy increases at a whopping 320%. Looking at the Pension Wise figures, what adviser wouldn’t be happy to charge £496 per hour for financial advice, not be held liable for that advice and have none of the crippling regulatory costs responsible for the demise of so many advice firms?
Clearly, it is lunacy that consumers are being offered free financial advice courtesy of the Government when the actual cost to deliver this service is triple the cost of regulated advice. To add insult to injury, the service offered is part-funded by a levy on financial services firms. Advisers will pay an estimated £4.2 million for the Pension Wise service in 2015/16.
Although much of the session costs are currently attributed to service set-up and are likely to decrease over time, the Government clearly needs to address the cost of Pension Wise.
Recently released Government data stated that the total number of completed Pensions Wise appointments has reached 40,600 with 89% of people stating that they were satisfied with the guidance they had received, perhaps no great feat for a free service? It is when consumers are asked to part with their hard earned cash that a certain level of service is - and should be - expected.
Former pensions minister Steve Webb has admitted, with hindsight, that the Pension Wise service was a costly mistake. Calculations for the financial outlay were clearly way off the mark. Of course, the money would have been better spent on a voucher system enabling consumers to see an actual IFA.
Did the Government think that simply by removing the cost of regulation, that this re-branded financial advice called ‘financial guidance’ would be vastly reduced in price?
The cost of providing financial advice is an expensive business, even without the crippling additional cost off regulation. Whether a consumer takes advice from an IFA, goes direct to a provider or takes the DIY online platform approach there are always costs involved.
Surely the answer is for the Government to take the decision to stop wasting money on Pension Wise and allocate the money to regulated advice firms who will do a proper job at half the price?