The Chancellor announced in his Budget a plan that would allow everyone with a “money purchase” pension plan coming up to retirement to access “free, face-to-face advice” about their retirement choices and options.
In the document Freedom and choice in pensions published straight after the Budget the word “advice” was replaced by the word “guidance”.
There is also some doubt now that it will always be delivered face-to-face.
This announcement stimulated a lot of debate in the financial services sector because the words advice and guidance are frequently interchangeable.
The Chancellor when challenged admitted that he didn’t really mean advice (in the sense of an authorised and regulated activity) but actually what he meant was guidance, but he used advice because he has a duty to communicate in plain English.
Confused? You have every right to be.
If we throw “information” into the mix you can see how people might be easily confused about what they are actually getting from the financial services sector.
So I thought I might give you a simple explanation of what we believe is meant by these words.
Information
This is factual stuff. Numbers and words.
For example it might be something like. “From 1st July 2014 you may contribute £15,000 into an Individual Savings Account (ISA)”.
You can see it is a statement of fact (hopefully accurate).
You might read it in a newspaper, on the internet (and remember the internet is as good at providing mis-information as it is at providing information) or in a brochure.
It doesn’t seek to compare an ISA against any other savings or investment product and it certainly doesn’t advise you to invest £15,000 in an ISA – it is simply information. You chose what you do with it.
Guidance
Guidance takes information and invites you to give some thought and consideration to how it might affect you.
You could pay £15,000 into an ISA but you might also be able to pay that £15,000 into a pension plan.
Each will have advantages and disadvantages and guidance might well describe what those are.
It will ask to you to reflect upon your situation and consider which might be right for you. But it still isn’t advice.
Guidance shows you a number of different roads and asks you to consider which route to take. This is what the Chancellor was referring to when he inappropriately used the word “advice”
Advice
Advice is personal and direct. “You should invest £15,000 into an ISA and invest in XYZ fund with ABC”
It is specific and it tells you exactly the course of action that you need to take.
This is the service that is authorised and regulated by the Financial Conduct Authority (FCA) It is so much more than information and exceeds guidance by a long way.
It is also valuable and worth paying for.
Generally speaking Information and Guidance are worth less (not worthless!!).
If you take advice there are a whole raft of protections that kick in for your benefit.
So, whatever the outcome of the Chancellor’s initiative for at retirement guidance the one thing that we can pretty much say for sure is that it won’t be advice.
