Written by Kevin Okell on Wednesday 20 February 2013
It’s a long-standing anecdote in the industry that financial services are sold rather than bought. For years this arrangement has underpinned an advice sector geared up and incentivised to sell a wide variety of products in return for commission payments from manufacturers. The net result was that UK households squirreled away around 5% of their annual income for a rainy day.
RDR has changed this landscape completely. With consumers now required to pay explicitly for advice, even the most evangelical new model adviser accepts that the overall demand for advice, particularly in the mass market, will decrease. Without that personal pressure to defer immediate consumption in favour of long-term plans it seems inevitable that UK savings rates will decline as a result. Even the FSA’s own research into mass market impacts tacitly acknowledges this side-effect albeit quoting selectively from the more encouraging statistics. The conclusion I draw from this is that the regulator sees advice bias rather than a decline in saving as the greater of two evils.
It is interesting, I think, to contrast this macro view of the savings landscape with the other great savings policy project of the day – Auto-Enrolment. AE clearly sees higher savings rates as the overarching public policy objective and is prepared to accept a few inequities at individual investor level along the way to achieve it.
Whether it be Steve Bee’s campaign for every pound of pension saving to make savers a pound better off in retirement, the economics of small pot transfers or the current debate on consultancy charging impacts, the government has been pretty consistent in pointing out the greater good of increased saving for old-age when fending off challenges to its policy.
In fact, right from the outset the DWP made it clear that it would use the same consumer inertia that financial advisers must overcome, to ensure the maximum take up of pension saving by the mass market. A bit of collateral damage in the form of a few investors for whom pension saving might not be the best route was accepted as a price worth paying for the macro-economic benefits of increased saving for retirement.
Sensible policy-making you might say but a little at odds with the RDR it seems to me.