The price of advice - time for something in between?

One can’t help feel sorry for the advisory profession which can, quite frankly, feel stalked by the regulatory authorities in recent years – there is no let-up in regulatory reviews of the sector and one can only assume that this will be followed by further changes and another shake-up of the profession. What was it that someone said about regulators’ regulating – there appears to be no such thing as the status quo in our marketplace.

This review clearly has some laudable aims, namely to improve the access to advice for those who might ordinarily be unable to afford it. You would be hard-pressed to disagree with such action, particularly if it does allow those who perhaps need advice the most to actually access it. For too long it’s been a case of only those on decent incomes being able to afford advice and everyone else has to either do it themselves or muddle through. When you have a Government intent on providing more financial freedom to individuals then it is absolutely necessary that we beef up the advice provision otherwise this could be a recipe for disaster.

This is particularly the case of course in the area of later life advice. The pension freedoms are revolutionary but they may leave those struggling to get across the ‘advice gap’ in a far worse position if they choose the wrong options. I certainly fear that we are in danger of seeing more customers either voluntarily or, being forced to, disengage with the advice profession because of the cost involved.

The price of advice is certainly an issue that needs to be addressed as is the psychology of individuals when looking at what is on offer and what they are prepared to pay. In all walks of life, individuals need to see a value with the goods or services they buy, otherwise they won’t buy them. This is a tricky point for advisers to overcome – they put their price for advice in the ‘shop window’ but ultimately the customer doesn’t like the price and doesn’t see the value. They see the price tag of, for example, £1500 and their response is to say ‘no thanks’.

Given individuals in the later life arena have been empowered to make their own decisions about their retirement income, they are much more likely to feel (given the price of advice) that they can do it all themselves, rather than secure the services of an adviser. Increasingly, I suspect we are seeing an approach which can be broken down as ‘Guidance/muddling through’. Individuals don’t want to pay for advice, don’t see the value in it and therefore will go for what they perceive to be ‘advice-lite’, i.e. Guidance – which we all know isn’t the case anyway – after which they’ll attempt to make their way through the process themselves hopefully getting to a satisfactory conclusion.

It could of course work out well, but it could also end up as an unmitigated disaster and one suspects the Government is very aware of this which is why we have had the review announced. However, the advice industry can certainly help itself and those individuals who find themselves in such a position – let’s be honest there are going to be plenty that do. This is no longer about the offering of just two positions – advice or non-advice – because the launch of Guidance has changed the playing field and therefore we need something in between.

We ourselves are working on a project that will deliver a consumer sign-posting report covering all key retirement issues – it will be delivered via our strategic alliances with our core Academy ‘Ambassadors’ and will work to promote a simplified re-engagement with advice. This is all about achieving a process which takes individuals (where they wish to) through Guidance, post-Guidance and then on to relevant, valued and well-structured full advice from highly trained and focused Academy members.

In the meantime, what of those who don’t wish to have Guidance? Perhaps this review might like to look at the provision of a voucher for those who want advice. Here, those not wanting to use PensionWise receive a voucher instead towards a full advice consultation. After all, the Government put aside £22.2m to set up the Guidance service and anticipates it will cost £39.1m per year to run it – advisers pay 12% of its costs which equals £4.7m. Back in July it was announced that 18,000 had used the service over the initial four-month period. Very roughly, this means that the cost per head for the service is around £724 (£39.1m/54,000 users) – a voucher reduces the cost burden on PensionWise and allows individuals to go straight to the adviser. Money better spent perhaps and something positive to offer advisers who are paying for a service that the vast majority will not see any benefit from.