The Financial Conduct Authority’s proposal last month to make the A13 fee block, which consists of advisers, dealers or brokers, contribute 30% of the levy towards the initiative’s funding was criticised across the board for failing to benefit the advisory community.
The guidance guarantee represents chancellor George Osborne’s pledge to provide financial guidance to every retiring member of a defined contribution (DC) pension scheme following the pension reforms announced in this year’s Budget.
Sales and marketing director at The Fry Group, Jeremey Woodley said he felt the Government failed to properly consider its implementation of the guidance guarantee before its announcement in March.
“It is very easy for George Osborne to say “we will give you guidance” in the Budget, but everyone has since wondered how he is actually going to do it,” he said. “We have to ask the question of what the paying mechanism is here. I thought the regulator would at least cover the regulatory fees.”
He said the Independent Financial Adviser community would question the Government for creating an initiative then charging the private sector for its implementation.
“Whether or not IFAs will pay depends on how the levy is introduced; if the regulator is involved then there is not much that can be done.
“The reality is that most of the time those requiring the guidance guarantee will not be part of an IFA’s client base because they will only have small amounts of cash, meaning they are unlikely to be of a very high value to IFAs in business terms.”
He added that the idea of people purchasing a greater variety of products after receiving guidance was unrealistic, and suggested an online advice system as an alternative solution.
“Ultimately, the cost will keep coming back to the client, it is the only pocket that the government can keep coming back to and they need to remember this.
“Guidance guarantee would work in a utopian world, but that isn’t where we live.”
Reality vs Practice
Sarah Lord, managing director at Killik Chartered Financial Planners, similarly questioned the Government’s level of preparation prior to the guarantee’s announcement.
“How the guidance guarantee is going to work in reality and how it is going to work in practice are very different,” she said.
Lord said advisers would be unlikely to support the funding of the initiative if consumers were being guided towards institutions such as the Pensions Advice Service and the Citizen’s Advice Bureau, who have both agreed to upscale to cope with the predicted advice demands.
“You can’t levy a charge with no benefit,” she said. “Why would we pay for something that could negatively affect our profit margins?”
She added that she supported the wider promotion of financial advice because it would help the “man on the street” who has had difficulty obtaining financial advice since the Retail Distribution Review, but questioned the consistency of quality when advisers were being asked to give guidance.
“If advisers are to pay the costs, there needs to be a clear definition of guidance, because at the moment it is difficult to draw the line between when something is guidance and when it becomes chargeable advice.”
