The government are under attack from the financial advice sector for two initiatives, both of which are reckoned to be damaging to the long term financial interest of the mass market. Firstly, soft compulsion is going to be used to enforce pension savings on the lower paid while secondly the Retail Distribution Review’s fee only regulations will remove the mass market from access to financial advice. So we have a truckload of new investors being unloaded into the middle of the investment jungle and the removal of their access to a man with a map.
But maybe there is a solution. One of the questions that have been overlooked in all the discussions on NEST is how the employer will decide whether to use NEST, a different qualifying scheme or a combination of the two. It is expected that the majority of the employers will use a pension’s consultant or IFA to make the decision and pay them separately. The newly enrolled members of the savers club will not have any direct contact with them.
On the other hand, we currently have an IFA sector being squeezed by the proposals from the Retail Distribution Review, which even the FSA themselves admit will cause a reduction in both IFA numbers and the amount of financial advice given to the mass market.
If only we could marry the two initiatives. If the employees were to carry the cost of the advice, that could form the basis of an ongoing advice relationship which the IFA could expand to cover other products. Given the numbers involved, this could bring down the cost of advice per person and ensure that the mass market had access to broad range investment advice which could be made profitable for the IFA.
Unless pension funds are left sitting in a default safe fund i.e. low growth, there is a need for the new investor to have some investment advice and the employer will not want to be directly involved. What better time for an IFA to give pension investment advice along with further advice on complementary products? The extra time required would not be excessive so the fees could be contained at a reasonable level.
In this way, instead of two separate policies which will have the effect of firstly expanding the number of savers in the country and secondly reducing the amount of financial expertise available to them, we would end up with a large, well advised saver base that would increase their purchase of suitable financial products giving them a more protected future – which is essentially the proposed aim of the government.
With a bit of clever integration, two wrongs could possibly make a right.