I was recently asked to take part in a Pensions Expert podcast on the Financial Advice Market Review (FAMR) and in particular one of the FAMR’s recommendations in its final report that the FCA and the Pensions Regulator should develop and promote a new factsheet to set out what help employers and trustees can provide on financial matters, without being subject to regulation.
This has always been a tricky area for trustees, who on one hand want to see the best member outcomes possible, and on the other hand are wary of straying into the regulated area of giving advice (which they can’t do).
Trustees should be aware through their knowledge and understanding requirements, and in working with their own advisers, that there is a very clear line between advice and guidance and one that should not be crossed. Trustees are obliged to provide specific information to members and have a general duty to ensure that members have all the information they need to make an informed decision. The Trustees, and the Employer, are generally the points of contact for members so it is understandable that members would look to them for support . However, as Trustees, we have to be careful. Whilst it is understandable that Trustees want to support members in making sometimes difficult choices in relation to their pension, there is that fine line between guidance and advice.
Advice is based on the facts, but goes further and becomes an opinion, a direction or a recommendation about what the member should do based on applying specific expertise to the facts. Giving advice is a serious business that requires the application of experience, qualifications and is backed by a professional code – oh and FCA regulation as well. Advisers have to take responsibility for what they advise. If a member makes a decision based on information provided by the Trustees, or their Employer, and that information is inaccurate or opinion based, the member could have grounds for complaint and possibly, if financially worse off, compensation. That is what would happen if a regulated adviser gets it wrong
So, you can see there is a disconnect between what trustees may want to do, and risk of crossing a line.
Trustees want to be comfortable in giving information and empowering choice. We would like to have no concerns in providing as much information as practical to the member. Support for trustees to help us understand how we can inform gives the Trustee comfort that we can do all that we can to help and empower members to reach the best outcomes. Trustees should not be afraid to educate and inform, but to also flag the importance of regulated advice.
This is where the FAMR recommendation can help. There is a place for guidance to fill the gap between full advice and the prospect of members taking action completely uninformed. As trustees we would like to help bridge that gap and certainly clear guidelines and a uniform approach to guidance from factsheets would be welcomed, and would lead to less confusion and crossing of lines between guidance and advice, albeit accidentally.
Are the FAMR recommendations a perfect solution to the advice/guidance minefield? No they’re not. There is more that needs to be done, especially around delivery and engagement with members. But it is a start, a good start and one that trustees should not be afraid to engage with themselves and embrace.