The advice and guidance boundary review remains a political and regulatory priority, with both the Treasury and the Financial Conduct Authority working on the project.
The current review is part of the Edinburgh reforms, a package of measures announced in the autumn statement last year and designed to help the financial sector in the UK take advantage of Brexit through divergence from EU legislation.
The key regulations in terms of advice and guidance are the Market in Financial Instruments Directive I and II, European legislation which has been cited by UK regulators as limiting their freedom of action over the years.
Yet long before Brexit, a remarkable number of proposals and initiatives had been introduced over decades focused variously on advice, products and/or the boundary. Some proposals have been shelved or dropped entirely, while others that have made it onto the regulatory statute
book, but arguably not brought significant change.
However, with the FCA returning to the subject, one question that is often not asked directly is what any likely liberalisation would mean for workplace pensions. To that end, Corporate Adviser has asked some experts for their views on if and when the reforms will be delivered.
First of all, it makes sense to evaluate where we are now. The latest update from the FCA came in early August. Among other things, it folded ongoing work on ‘Core Investment Advice’ involving investment Isas into the overall review amid what it acknowledged was limited support for its proposals.
More importantly, it set out four themes that would inform its work:
- The solution to this challenge will not be met by changes to regulated advice alone. People’s needs are diverse and vary over their lifetime. We need firms to actively engage and provide flexible forms of support that can adapt to different types of financial decisions.
- To provide more support to more people it will be necessary for firms and consumers to manage risk, rather than eliminate it. This is because risk is a key driver of cost to firms and ultimately to consumers which directly impacts on the availability of support.
- Any solution will rely on support being provided on a commercial basis. The review will need to focus on outcomes and design a regulatory system where commercially viable models of support can emerge.
- This review should leverage the Consumer Duty, to set clear expectations for the support that firms provide their customers and ensure that consumer protection remains at the core of any future regime, and we will work closely with the Financial Ombudsman Service to do so.
Picking up on that last theme, the Lang Cat senior public affairs consultant Tom McPhail says: “The FCA is bending over backwards to facilitate better guidance to investors. The advice guidance boundary review (AGBR) is the carrot, Consumer Duty is the stick. The FCA’s interim AGBR statement shows the direction of their thinking, looking to make it as easy as possible for providers, such as platforms, to steer customers towards better outcomes by framing information and questions in ways that are relevant to that customer.
“With luck, this will dovetail with the DWP work on decumulation from trust-based schemes, where the emphasis is on the process and the information, rather than on promoting a specific product as a default solution.”
The FCA also issued a clarification for firms “who want to support consumers more, particularly during the increased cost of living, without providing a personal recommendation”.
Interestingly, this clarification mentions pensions several times, while noting that “pension freedoms have potentially complicated decisions for consumers and that some firms may be being overcautious about avoiding personal recommendations”.
As McPhail pointed out, the Consumer Duty and its likely impact on pensions looms large.
For example, it suggests that under the Duty, firms may wish to include a warning where a transfer could lead to a loss of benefits such as protected retirement age, protected tax-free cash or a guaranteed investment return. It suggests that firms may wish to outline the potential consequences of withdrawing pension funds such as tax consequences or any impact on means-tested benefits, as well as scams and the long term implications of stopping or cutting back contributions due to current cost pressures.
Much of this is likely already best practice, but what of the future changes?
Considering the potential impact, Tom Selby, head of retirement policy at AJ Bell says: “We need to improve the information and help pension savers receive across the board. That ideally means increasing the number of people who take regulated advice and making sure guidance is as useful as it can possibly be. In developing these reforms, government and regulators need to be conscious of the various different organisations and individuals that may be in a position to provide help to savers and enable good outcomes throughout the savings journey.
“For millions of people, the workplace – and specifically their workplace pension – will be among their key points of contact with the financial services sector. That means employers, workplace pension schemes and corporate advisers will be in a fantastic position to provide help for millions of people. Ensuring any reforms take into account these relationships will be critical if they are to prove successful.”
What is also interesting, given the FCA’s list of clarifications above and tend to be warning related, is the view of Royal London director of policy and communications Jamie Jenkins who says that guidance has emphasised pitfalls and dangers rather than what is reasonable and sensible. He would welcome a reframing.
In terms of employers, he says: “We do need to be careful that we don’t hold employers and all the infrastructure they set up around a workplace pension accountable for people’s decision making and advice. We need to think what is a reasonable ask of employers in that space. Equally that applies to trustees. For employers responsibility to employees starts primarily around the provision of a scheme and the payment to a workplace pension? And I think that’s right.”
He is wary of defaults in decumulation or having trustees choosing routes for members whether CDC or pathways, which he sees as “inherently problematic”.
“It does lead you to ask ‘where does guidance and advice fit in?’ If people’s circumstances are almost entirely individual at that point, and they’re not naturally getting guidance or advice, then how do we do it? That takes you to who’s well placed to do that? It could be the provider with whom you have your product or through something that’s typically more expensive with an adviser, typically independent and much more detailed.
“But the first point with this review is to ask the right questions. My worry is that we end with a niggly technical debate around the detail of the boundary, the giving of advice or the making of a personal recommendation. I don’t think we’ll gain much from that. We need to look more broadly and say, look, what do we really want to do for people.”
Sam Burden, client director at Zedra, says: “The essence of this is that for many years, there’s been a need to offer more help to people as they approach retirement. It’s the most difficult piece of financial decision-making most people will ever have to make. But care is also required when offering guidance, as providers need to avoid straying into advice. The FCA want to make things clearer and to avoid this
over caution.”
He says for now, the process feels iterative and helpful, but not vastly ground-breaking.
Asked whether guidance could be provided by consultants to schemes, he says: “It’s generally the providers that are facilitating guidance, because you need to do it at scale and it’s wrapped up as part of their services. When selecting a new pension provider, retirement guidance and support are key elements of the provider’s package that should be considered as selection criteria.”
Indeed, it is the provider’s trade body that is arguably the most vocal in pushing for change.
Rob Yuille, head of long-term savings policy at the ABI, said: “We’ve long called for the advice guidance boundary to be reformed so that our members can do more to help customers make crucial decisions about saving, investing and accessing their pensions. The ongoing Advice Guidance Boundary Review is a good opportunity to empower providers and others to guide consumers towards better outcomes.”
Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association adds: “More guidance is needed for savers, and it is positive that the FCA’s Advice Guidance Boundary Review is looking at the issue. Before any recommendations come from that review, there are still things employers can do in the meantime to provide their staff with more information about how their pension works.
“We know that many employers, schemes and providers are worried about falling foul of the advice/guidance boundary and we have published guidance to help dispel the myths about what information they can and can’t provide.
“We are also very supportive of government’s planned reforms to increase retirement support and believe the proposed obligation on trustees to cater for their members’ access needs should enable schemes to go further with their guidance. We look forward to engaging fully with the engagement consultation later this year.”
Although not directly linked to the advice/guidance review, there is increasing discussion regarding the regulation of advice to employers from consultants.
The House of Lords Industry and Regulators’ committee wrote to City minister Andrew Griffith in February suggesting that consultants be regulated in the wake of the LLDI crisis.
In ‘Investing for our Future: Delivering for Savers and the Economy’ published in July, the ABI made the following as one of its short term recommendations to improve things.
It said: “Employee benefit consultants should be regulated for the advice they give employers on pensions,” and suggesting that the FCA, Competition and Markets Authority and Work and Pension select committee had supported regulation.
Some advisers agree with Syndaxi Financial Planning director Robert Reid, who advises both individuals and companies, suggesting that despite disliking the term ‘level playing field’ that is exactly what is needed.
The ABI’s Rob Yuille adds: “Employee benefit consultants are well placed to support consumers with financial decisions, alongside their work with employers. We’ve recommended that they should be regulated by the FCA for the advice they give to employers on pensions. This is to help ensure all parts of the pensions value chain focus on overall value for money rather than cost. Regulation of EBCs would be separate to that of the advice/ guidance boundary, although anyone providing guidance must still adhere to the latter.”