Mike Crowe takes a moment to look at the Financial Advice Market Review.
With the 2016 Budget firmly out of the way it's an opportune time to look back to just a couple of days before it and the publication of the Financial Advice Market Review (FAMR) by HMT and the FCA.
Containing no less than 28 recommendations this is a significant report as it addresses one of the main problems facing the industry – an advice gap in an ever more complicated financial world.
"So what?" You may say, "?advice and guidance are out there and RDR stopped all that commission nonsense so what's the big problem?"
Yes, it's out there, but only for those who have large sums to invest and are willing to pay for advice, For the mass market, there is a big gap where advice and guidance should be. People need to save more, the chances of this happening increase greatly if they have access to advice.
The problem is that they won't pay for advice (or at least are only prepared to pay GBP 253 for it according to a recent FT Adviser survey).
The unbiased.co.uk website sets out a table of average costs for advice and basically you don't get much advice for under GBP 500.
Converting a GBP 30,000 pension fund into a lump sum and annuity will cost you GBP 850 and at retirement advice on a GBP 100,000 pension pot will cost you between GBP 1000 and GBP 2000 depending on whether you know what you want to do or not.
The GBP 150 tax and NI exempt allowance for employer arranged advice is good but not good enough apparently.
That covers advice.
Guidance is not advice, lets be clear about that. Guidance, through Pensions Wise, is useful but limited and it seems only one in 10 are making use of it.
So what we have is a gap between what is available at a cost and what people want and need. That is where FAMR comes in and why it needs serious consideration.
Is it the finished article? No. Is it universally accepted? No. Is it a good starting point? Yes.
The report highlights that it will look at a selection of measures to tackle the main issues of affordability and accessibility.
The Budget kicked things off by announcing that the GBP 150 tax and NI exempt allowance would be increased to GBP 500.
The report also stated that a consultation will begin to see if a further tax free amount up to GBP 500 could be withdrawn from DC funds to pay for advice and a pension dashboard should be in place by 2019, a challenging deadline.
This latter announcement comes just weeks after the Pensions Minister said a pension dashboard would be "a decade away".
The report goes even further and opens the door to new methods of advice delivered using technology –robo-advice - a phrase we have all become familiar with over the last few months.
Certainly, this is a way opening up mass market advice, for uncomplicated scenarios, at an acceptable cost.
The report says "the Financial Advice Working Group should work with employers to develop and promote a guide to the top 10 ways to support employees' financial health".
This brings into focus, that for many, advice and workplace pensions are closely linked and that utilising the workplace and employers for delivery is a key area for consideration.
Another key recommendation seeks to provide streamlined advice on simple consumer needs in a proportionate way. In other words, the right level advice for the complexity of the requirement - at the right cost, at the right time.
This pretty much sums up FAMR and what it is trying to achieve is good, which is why it us such a shame so many seem to be lining up to tear it down. If everything was perfect then no advice gap would exist.
But there is one and it needs to be tackled.
Written by Mike Crowe, Spence & Partners.
