2015 witnessed a new era of pension freedoms and we wanted to hear Peter’s thoughts on what this actually means for savers and if it will change attitudes to long-term saving. We also quizzed him on the Financial Advice Market Review – or RDR II as it has inevitably been labelled – and ended by asking him what the future holds for our industry:
What does a long-term savings culture mean to you?
We live in a debt driven culture and we worry more about our debt than saving and what our retirement will really be like. We are socially adjusted to think ‘I’d love to pay off my mortgage by the time that I am 50.’ I don’t think that as an industry we make the connection for consumers strongly enough that debt management is ultimately a path to the investment opportunity. Once an individual is in control of their debt or debt free, we need to show them the route to saving and investing their money and that should be intuitive.
Part of this is around the dialogue between the consumer and the companies who create and distribute the products. We have to communicate in a way where the value and the benefit of savings and investments is clearly understood and encourages the consumer to engage more with his or her money. The majority of people don’t respond to numbers, they prefer images or talking things through. We need to offer something tangible– by saving this much into my pension each month, I could afford to live like this in retirement.
There has been a big campaign to drive awareness of pension freedoms, is it a good first step towards public engagement with retirement saving?
The campaign to raise awareness of pensions liberalisation via Pensionwise is a success story. Extensive press coverage has meant that people have talked about it down the pub, they have seen the advertisements on the Tube and these visual and verbal cues have promoted take-up. According to Treasury figures, 18,000 guidance appointments have been held in the period between April and the end of July which is pretty significant.
So can pension freedoms create a better retirement future for us all?
My personal views are positive about the intent behind pension freedoms. But I am on the neutral to negative side of the fence on the outcome. I think that the Government – and to some extent, our industry – have made a relatively simple thing very complicated. We have created a new language around products: UFPLS (or uncrystallised funds pensions lump sum to the layman), guaranteed income, target date funds…it’s all very complex. How are consumers expected to understand it?
And if we think that retirement income accrual for the average person is around £33,000, I would question whether we have built a set of rules and regulations that cater to a reality that does not in fact exist.
The Financial Advice Market Review is a product of the Treasury’s concerns over an advice gap – is it justified?
I am encouraged that there is now recognition by the FCA that the advice gap does exist and that it has to be investigated (somewhat of a volte face). There is a sense of pace about proceedings and one can reasonably expect white smoke relatively early on and the appointment of an advisory board is also the right move. Whether the outcomes of the review are a type of product, a regulatory license of some kind or an easement of the proposals that allow consumers to safely and appropriately purchase products – I don’t know. But any of these would be a good thing.
So could ‘RDR II’, as it is being called, help to close the advice gap?
It could but I would sound a note of caution. Advisers have done a fantastic job of accepting the rules and regulations set out by the RDR. They have adapted their business tremendously well, largely thanks to the efforts of the advice community as a whole. But there is an argument that the market needs to be allowed to mature and settle down.
If we have a simplified advice regime and create simple products for people with simple needs we could see the resurrection of Direct Sales Forces and/or banks re-entering the market. Neither has a glowing track record. You can police the product but you can’t police the intent and that is typically one of profit. Attractive products and services for the more mass market are important but the critical thing is how do we distribute them?
Could robo-advice be the answer?
I think it is a really good idea trying to find a market. But where are the clients? My hope is that the existing adviser community find a way or receive a sensible regulatory path to get simple products solutions into the hands of clients efficiently and effectively.
Finally, our industry is in a state of flux with the recent news that now AXA Wealth is up for sale…is the future positive?
I think that we work in one of the very few industries with a genuinely honourable purpose. Most of our industry leaders are good men and women with a good intention – to provide positive customer outcomes. I feel very positive about the future for consumers, if we can find a way to engage them that they understand, which is relatively simple and which is ongoing. There is a real intent to innovate in our market and a desire to develop better products and solutions.
But growing shareholder pressure on financial institutions makes it difficult to strike the right balance between providing shareholder value and good customer outcomes. We must keep on reminding ourselves that in the end, it really is all about providing a better future for our customers.
Hear more from Peter at Platforum 2015 – The definitive event in retail investments – To register click here