24th July 2014 by The Harried House Hunter
There’s rarely a week that passes when I don’t thank my lucky stars that my daughters are growing up in the UK. Prosperity, the NHS, law and order and free speech are all things that we often take for granted in this country.
Yet, and without seeking to sound too melodramatic, we always need to be on the look-out for erosion of such liberties. And I think I have witnessed one such attack in the most unusual of places – the Financial Conduct Authority’s (FCA) Consultation Paper Retirement reforms and the Guidance Guarantee.
The above document deals with some of the finer detail of the much discussed Guidance Guarantee. For those new to this topic, this is the Government making good on George Osborne’s promise that all pension savers will be provided with free guidance as to their retirement options from 2015.
It’s worth pointing out at this stage that the Guidance Guarantee may not be quite as comprehensive as was first suggested by The Chancellor. This document makes it clear that there will be distinct limitations to the guidance on offer, with many of those using the service being signposted to a financial adviser to actually undertake the compliant process of recommending a product and provider, and indeed taking the action needed to conclude the transaction.
This does not in any way mean that the Guidance Guarantee won’t be useful for many savers – it will – but a service that is not entirely watertight should always be subject to public and professional scrutiny, and indeed criticism where appropriate.
Which is why I was deeply concerned to see the following passage in the Consultation paper:
“Preventing the guidance being undermined
4.14 Pension providers, trustees and employers are likely to remain the first point of contact for their customers when they are starting to think about taking their pension. It is right that providers should be able to speak to their customers about their options in general and about the products they can offer. However, concerns have been raised by many stakeholders that providers may seek to circumvent the spirit of the Guidance Guarantee.
4.15 We believe behaviour of this kind is likely to breach the requirement to act in the best interests of customers (the client’s best interest rule in COBS 2.1.1R) and the principle to treat customers fairly. We propose to add guidance setting out that firms should not do anything to actively discourage their customers from taking the guidance. This would include:
• holding themselves out as providing the ‘Guidance Guarantee’ themselves
• suggesting the guidance is unnecessary or not useful
• obscuring the information that customers need to enable them to access the guidance
Q10: Do you agree with the proposal to add this guidance?”
Now it’s that second bullet point above (highlighted in bold) that is my major concern. I need to tread carefully here, and I wish to make it clear that this essay is very much my own work rather than a house view. And with these caveats firmly in place, my response to the Consultation question above is a resounding “No”.
I have no problem with the general thrust of the Guidance Guarantee, or indeed the FCA trying to limit the opportunists from damaging the same. But I have great difficulty swallowing the suggestion that, should the Guidance Guarantee be found wanting once it goes live, that the industry will not be able to communicate these concerns to the very consumers it is set up to support.
At this stage we have literally no idea how useful the Guidance Guarantee will be. We all hope it will be a success, but it is a big ask (particularly in the timescales allowed), and it’s quite possible that industry and employers will develop much more robust and useful guidance outside of this proposal. And if that is the case, and proof can be offered to support this approach, why should the industry not be allowed to say so? We are after all required to give the best and most suitable advice to our customers.
It’s also best not to assume that Government led initiatives are always right, or better than private sector alternatives. I can think of two easy analogies outside of the pension’s arena to demonstrate this.
Let’s start with the National Health Service (NHS). The NHS do a fine job – indeed I cited them at the beginning of this very article as a huge positive of living in the UK – yet no one (not even the Government) would claim they are perfect. The challenge for the NHS is how to provide a really comprehensive service given the dual limitations of being universally available and providing a service free of cost at the point of use (in fact these are much the same limitations that will apply to the Guidance Guarantee). Private healthcare is unfettered by such limitations, and as a result can sometimes provide quicker and more comprehensive cover than the NHS is able to deliver.
My second analogy is the Home Information Pack (HIP) requirements introduced in the noughties. HIP’s were foisted upon both the real estate industry and consumers to help smooth the house-buying process, but owing to various issues (not least the usage of data that was quickly out of date) they soon became redundant and largely ignored by the consumers that had to pay for them. It was a good idea in practice, but much less so in reality.
Both of the above are examples of how sometimes Government initiatives, although well intentioned, may not always be the panacea expected. One hopes that the Guidance Guarantee will avoid such problems, but if there are issues and concerns then the industry should be allowed to say so. Indeed, as advisers, should it not be our duty to alert the consumer to this? If not then consumers may well be undergoing a duplication of exercise – possibly even producing contradictory results – for no good purpose.
So I do hope that this suggested piece of guidance is watered down somewhat, and that the industry will be allowed continued free speech on such important matters. The FCA possibly won’t agree with my sentiments above, but I would hope that they at least acknowledge that I (and the industry) should have the right to voice our opinions. To borrow from Voltaire:
“I do not agree with what you have to say, but I’ll defend to the death your right to say it.”
Steve Herbert is Head of Benefits Strategy at Jelf Employee Benefits