The wheel has turned full circle. Financial advice from an agent tied to a provider is making a comeback, after years in which conventional thinking dictated that the only way forward was independent financial advice.
As first revealed last week in the trade magazine Money Marketing, Aviva, one of Britain’s biggest insurers, is to restore face-to-face advice for people who are retiring who are currently without help.
This follows similar moves by Standard Life and Old Mutual, all of which have been predictably labelled as the return of the Man from the Pru – the thousands of Prudential agents who cycled door to door in the last century, collecting as little as a penny and staying for a cup of tea and an often useful chat.
In the 1980s and 1990s regulators, government departments and the media all lauded the IFA as the only true supplier of the purest wisdom. IFAs were allegedly made all the purer three years ago when the Retail Distribution Review insisted that consumers paid fees instead of banks, insurers, pension firms and fund managers paying secret commissions.
There was just one flaw. Fees big enough to get IFAs out of bed were prohibitive unless the customer had at least £100,000. That excluded the vast bulk of the population, who were also in the most need of advice.
Well-meaning attempts were made to plug this gap through Citizens Advice, the Money Advice Service and campaigns to introduce financial lessons in schools. But they never really worked because the financial incentive was not there. Advisers have to eat and pro bono can only get you so far.
Tied advice was seen as tainted, but many self-proclaimed IFAs are far from independent. They find no difficulty in recommending products that just happen to earn them the highest fees. It may just be coincidence that investment trusts, one of the best-value equity savings vehicles, long shunned by advisers, pay no fees or commission.
But the liberalisation of pensions last year, enabling policyholders to cash in their entire pot and – theoretically, at least – blow it on a world tour or a Lamborghini, sent the industry into a spin.
Discreet lobbying began in 2014, a year before the pension floodgates opened, to let providers talk to retiring customers to try to dissuade them from anything too rash – such as taking their money away. It worked.
Andy Barton, Aviva’s client advice director, said: ‘There has been a noticeable increase in people asking if we can help with advice, and up to now we have had to say no. Like a lot of organisations when the RDR came in, Aviva did not know what the demand to provide advice would be in the future so we stopped providing it. But in April last year all of a sudden that demand increased again and we are aiming to meet those customer requirements.’ In other words, panic stations.
Whatever the immediate trigger, the consequence may be to break the deadlock over how to get advice to those who most need it – the poor and the ignorant who are on average retiring on the state pension plus a nestegg of under £30,000. These days, that sum will buy a 65-year-old man a flat annuity worth £27.80 a week.
Of course, to be effective the advice has to start at least 20 years earlier, when many people are still digging themselves out from under student debt, a mortgage and school fees. No wonder the Bank of Mum and Dad is working overtime.
The principle has finally been conceded that, while tied advice is often inferior to the independent variety, it is a heck of a lot better than no advice at all. And, when all’s said and done, providers and their agents are still obliged to inform customers that they have the right to shop around. Shopping around? What’s that? All of a sudden, we are off on a whole new conversation.
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It is universally acknowledged nowadays that a British man without a fortune would rather have his fingernails pulled out than pay for someone to tell him what to do with his pittance – or, even worse, how to turn it into a fortune.
While everyone in UK financial services bemoans the injustice of that sentiment, the events of the past eight years have hardly endeared Joe Public to the idea of pushing a penny more than necessary towards the money magicians.
The good news is that the regulators blinkered by the old shibboleths have largely moved on. This month the Financial Conduct Authority acquired a new chief executive, Andrew Bailey from the Bank of England. Let us hope that, without too much prodding from new heavyweight non-executive directors (Baroness Hogg and Ruth Kelly), he is brave enough to start with a clean sheet of paper and fresh thinking.
Meanwhile, although his death has been pronounced more often than Mark Twain’s, the Man from the Pru never entirely went away. He long ago traded his bicycle clips for an email address and has acquired some bright young sisters, but for the past few years he has been quietly offering a restricted but nevertheless face-to-face advice service.
Long may that continue and, now that the Pru has been joined by Aviva, let us hope that Legal & General, Aegon, Royal London and other leading firms gatecrash the party.
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