Despite some pretty good tunes over the years, I’m not suggesting that the band, AC/DC, are the key to solving the retirement advice gap. However, AC/DC, referring to Adviser Charging and Defined Contribution respectively, might just be a major component in the solution.
I talked about the retirement advice gap previously. In summary, I think we all agree that, while the guidance guarantee will be valuable, it won’t give people all the answers they need. And full financial advice will be disproportionately expensive for many people whose pot size doesn’t merit it.
So, if someone at 60 has, say, £30,000, and rather than wanting to buy a sports car or blow it all on a year of extravagance, they want to do something sensible with it to bridge the gap to State Pension, what kind of advice can they get? Let’s say an adviser can give some narrow (I deliberately use this word to avoid any of the recognised advice terminology) advice relating purely to how they might structure their retirement products. And they can do that for, say, £400, then it might be attractive.
Such a statement will bring challenge, of course, from those who believe there isn’t a workable framework for advisers at this cost, or it simply can’t be delivered at this cost, or indeed that there is simply no appetite from people to pay £400. So let’s look at these in turn:
There’s no framework
I agree there are significant complications still inherent within the ‘simplified advice’ regime and that there are many who say it’s impossible to restrict advice to retirement products because there are so many other things to consider. I accept that, but some people may only have a finite financial resource to work with, or will simply accept that their retirement fund is there purely to deal with their retirement needs. And I also sense that the regulator is up for finding a solution to this problem, so they’ll listen to ideas about how it might be delivered without an impending fear of recrimination.
It can’t be delivered for £400
This can’t be true, as some are already doing it. Whether it’s with an off-the-shelf, limited service or simply online, there are examples of both. It may not be as profitable as dealing with wealthier clients, I accept that, but the volume may make up for the reduced margin.
There’s no appetite from customers to pay £400
I know all the research says few people will pay even smaller amounts than this – never mind £400 – but we are entering a new world where people can make decisions with even a £30,000 pension fund that will cost them thousands of pounds in tax, if not executed well. Just look at some of the differences in tax treatment between the new FADs and UFPLSs to see that.
And it’s in relation to this third point that we can consider AC in a DC environment. People may be more willing to pay when they are offered the option of deducting payment from their fund, rather than handing over a cheque. Many people will happily pay this amount or more, every couple of years, when they change their mortgage and agree to wrap the fees into the loan.
I think AC has very limited application at the point of auto-enrolment which is, after all, designed to have people start saving without any intervention required. But it would seem like a much more obvious method of advisers being paid at the point of a customer’s retirement.
There’s nothing new in what I’m suggesting, and I never suggest I know better than advisers how to deal with such challenges, but I don’t hear many people talking about this ‘mid-market’ with a solution in mind.
So I predict AC/DC will be popular amongst people at retirement. That’s good, because Brian Johnson has confirmed they have no intention of retiring any time soon.