Consumers are put off seeking advice at retirement because of the explicit advice fees, said the government’s older workers champion, choosing instead to buy products without advice.
But they do so unaware commission is contained in the products sold directly, which can push the price up, Altmann (pictured) said.
She suggested the regulator “missed an opportunity” in dealing with commission, and could have created a system whereby it would pay for the “basic advice people need”.
The Financial Conduct Authority’s (FCA) Retail Distribution Review (RDR) banned advisers from charging for advice by accepting commission from product providers.
However it did not stop providers paying commission on annuities sold directly – for example via websites – to consumers.
An added confusion, she suggested, was consumers are under the illusion they are getting advice from services such as the Money Advice Service and The Pension Advisory Service, which carry the word ‘advice’ in their name.
“We’ve now got a system where consumers think they are getting free advice, which is actually non-advice,” she said.
“They can end up paying more for that via the commission charge at the end than if they’ve had proper independent financial advice in the beginning with the fee that put them off taking it when they thought they could do it themselves.”
“We need advice and the FCA has completely messed up the advice system for consumers. It has really missed an opportunity to introduce some kind of regulated basic advice system paid for out of the product instead of commission.
“For example, having a portion of the fund that you pay to get the advice you need before you do something you [might regret].”
She added: “Commission is a big problem and I would urge the FCA immediately to ban commission from any product sales. The cost of any transaction or any potential transaction should be declared upfront. That would help.”
Altmann suggested any money taken in lieu of commission could be used to turn the government’s guidance service Pension Wise into a ‘basic advice’ service.
She explained guidance would not be enough to deliver the risk warnings some customers may need, such as when they are at risk of drawing too much from their pension pots.
“Guidance helps you understand the questions you need to be asking but it’s only advice that gives you answers. Guidance stops before it can give you the answers.”
Clear rules
But basic, or simplified, advice can only be given once the regulator publishes clear rules around what constitutes guidance and advice, Altmann said.
The FCA issued a paper guiding firms on the subject in January but experts taking part in a roundtable discussion on pensions freedom on 17 March agreed “the rules are not clear”.
Hargreaves Lansdown head of pensions research Tom McPhail said: “There has to be regulatory evolution [in the simplified advice space].
“Whether it’s a fee or commission ultimately the customer is paying but the problem is we have currently got a regulatory environment where essentially anything that looks even vaguely beyond information provision could be construed as advice. The industry has its hands tied on this.”
