News late this week that personalised financial guidance is to move a step closer has left me in two minds but I’m not opposed in principle to the idea, for reasons I’ll explain.
We learned this week that new Treasury Committee chair Harriet Baldwin MP has tabled an amendment to the Financial Services and Markets Bill currently going through the Commons.
The amendment would, if adopted and passed in the Commons, allow personalised financial guidance to be offered to the public.
This sounds quite innocuous but the implications for Financial Planners and advisers, and the financial services sector, are very significant.
Before dealing with this it’s worth looking at what is being proposed and why.
The ‘why’ is quite straight-forward. It is to make some kind of financial help more affordable and therefore more widely available to the public.
There is a strong view, and I suspect many Financial Planners agree, that regulated holistic Financial Planning advice, while a life changing service when delivered correctly, is simply too expensive for the average person. One reason for the high cost is that true Financial Planning takes time and lots of it.
Since the Retail Distribution Review, which shifted the sector towards fee-based advice, those costs have gone up and up leaving many wanting or needing advice but unable to get it. So what is being proposed?
In essence Ms Baldwin’s amendment neatly encapsulates what many have been calling for over a number of years, particularly some product providers.
She wants to open the door to ‘personalised financial guidance’. This would go a step beyond execution-only but stop short of regulated financial advice.
It would not, for example, recommend specific products. MiFID rules on the ‘suitability’ of investment advice put a stop here but there is no reason that customers could not be nudged to invest more, for example, if they could afford it or be encouraged to avoid leaving all their money in cash savings. They might also get more guidance with retirement planning.
So what’s the problem?
The issue, which a number of advisers have raised, revolves mainly around where you draw the line between guidance and advice? Will customers taking ‘personalised guidance’ in future claim they were mis-sold because they thought the guidance they were receiving was actually advice? These are questions which MPs will debate soon.
So is this bad news for Financial Planners? In reality, it will probably have little impact on planners, most of whom have a clear client base: people with money to invest and complex financial needs. These clients are unlikely to want personalised financial guidance or benefit much from it.
For the mass market, however, things are very different. Many have made major investment retirement blunders simply by missing out on any kind of guidance at all. We know, for example, that many thousands have used the Pension Freedoms to withdraw their pension pots and leave the money languishing in savings accounts. Many do not understand, for example, the corrosive effect of inflation on their cash savings.
Personalised guidance, if it is introduced, may actually prompt more people to seek professional financial advice once their interest in money has been ‘warmed up.’
The key will be good regulation and the amendment already calls for the FCA to closely supervise any moves in this area but there is no doubt this proposal could improve access to better information and potentially be a welcome nudge in the right direction. That can be no bad thing.
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