How to reform financial advice
With speculation about changes to pension tax relief in the Budget slightly less fevered now, we can shift attention to how to reform financial advice.
During the Budget on 16th March, we expect to hear the outcome from the Financial Advice Market Review.
This was established to examine the advice gap for those without significant wealth, regulatory barriers to delivering mass-market advice, encouraging innovation in the advice market, and how to encourage healthy demand for financial advice.
It will be very interesting to hear what suggestions the Review has to reform financial advice and what changes the Financial Conduct Authority will be asked to put in place as a result.
Ahead of the Budget, provider LV= is calling on the Government to focus particularly on helping the most vulnerable people access advice at the point of retirement.
Their research found that only a third of people aged over 55 plan to use the Government guidance service Pension Wise (which is funded by regulated financial services firms) when they retire.
The research also found that only one in five say they will take independent financial advice when they retire.[tweet_box]Only one in five take independent financial advice at retirement, despite the benefits[/tweet_box]
As a result, around half a million people will retire each year without taking regulated advice and could miss out on the value this offers.
Missing out on regulated advice at the point of retirement is a big deal because people who shop around for an annuity are typically 23% better off than those who don’t.
This can result in thousands of pounds of lost income in retirement, all because of a failure to speak to an expert.
LV= came up with three ways the Government could encourage greater use of financial advice.
Providing consumers with a voucher to pay towards advice at the point of retirement as six in ten (63%) people would be more likely to use an adviser if they received a voucher, increasing to three-quarters (74%) of those with a stakeholder pension;
Introducing a standard definition for regulated advice, as well as ‘information’ and ‘Government-backed guidance’, so there are no confusions about the different types of advice and people understand exactly what they’re getting and the protections they have; and
Offering free advice for the most vulnerable with the smallest pots, and making it mandatory to use the Pension Wise guidance service for those who don’t take advice, so no one is in a position where they are without support.
These are all sensible suggestions and anything which can encourage a greater use of advisers at such an important life stage is to be applauded.
What we hope to see from the Financial Advice Market Review is a focus on genuine advice, rather than directing consumers to product sales as a solution.
Whilst the sale of financial products can form part of the answer in retirement, it is essential to start with a financial plan for the rest of your life, supporting this with products where appropriate.
It will be very interesting to see what is announced for financial advice in the Budget and how much of a difference this makes to access to advice in the future.