Arguably the most significant regulatory news of last month was the publication of the FCA’s consultation Paper 14/11 on Guaranteed Guidance which was timed carefully with HM Treasury’s declarations on the same topic published at the same time.
The idea of Guaranteed Guidance, given the swingeing changes being forced on the at-retirement market by HM Treasury, seems a good one. Our job has certainly got a lot more interesting as providers and advisers alike rush to find illustrations-based solutions to help consumers better understand their at-retirement options. However in the short-term at least, most of the focus has fallen on the fact that larger IFAs will foot the lion’s share of a potential £30m bill.
The Money Advice Service (MAS) and The Pensions Advisory Service (TPAS) will provide the Guaranteed Guidance but the real surprise is that advisers, not providers will foot the majority of the bill.
The regulator says adviser firms which come under the FCA’s A13 fee block with annual income of more than £100,000 will contribute to the levy to pay for Guidance. Smaller firms which only pay the minimum regulatory fee today – some 41 per cent of them – will not contribute. Deposit acceptors, life insurers, portfolio managers and investment fund managers will also contribute.
The final verdict on the split between these parties will be declared by October but there are three options mooted:
1. Base it on the regulators annual funding allocation which would see advisers paying 30 per cent of the overall cost; with deposit acceptors paying 20 per cent, insurers 17 per cent, portfolio managers 19 per cent and fund managers 6 per cent.
2. Split the levy evenly between all parties – meaning each will pay 20 per cent of the new bill
3. Allocate it in line with what retirement products and services consumer choose. This option (although the fairest minded of the lot) is also likely to be the most expensive and time-consuming to implement.
As we know all too well advisers have been squeezed very hard by increased costs associated with new regulation in the last few years. First there were the increased T&C requirements associated with RDR compliance. Then they saw increased Professional Indemnity Insurance; as well as FSCS levies rising at all-time highs (14 per cent average last year, some reporting more than 100 per cent increases); and Capital Adequacy Requirements also went up.
Many IFAs have been forced to focus on the higher net worth (£100,000+) clients, creating a widening advice gap which most of us are now in. Arguably Guaranteed Guidance addresses the widening Advice Gap - but Guidance is not Independent Financial Advice or anything like it, despite what the national media might have you think when reporting the changes last month.
Taking a step back to look at the resourcing of Guaranteed Guidance by TPAS and MAS. It is estimated that the two bodies combined handled around 100,000 calls last year. That figure could well quadruple in the run up to April 2015 and beyond. You only have to look at the media frenzy in the last week associated with the ‘Guidance Giveaway’. We also know that the baby boomer bulge are all reaching retirement age and up to 400,000 per year are likely to be in the market for at-retirement Guidance for the next 10 years or so. We now know that retirees can come back to these service providers as many times as they like. When they find out the alternative to Guidance is paid-for advice – they may well keep coming back to MAS and TPAS to get all they can out of them.
