Last month, Harriet Baldwin MP tabled an amendment to the financial services and markets bill. The amendment would give the Treasury the power to make provisions for Britons to access personalised financial guidance from appropriately regulated financial services firms.
Ministers have already stated that the Government would not support such an amendment, instead instructing Treasury officials to examine the current offerings of advice and guidance in conjunction with the Financial Conduct Authority (FCA). Nevertheless, the motion signifies that policymakers are aware that consumers need better access to information to help them make decisions about their pensions.
Any move to provide individuals with information about pensions and retirement finance products is commendable. However, Baldwin’s motion also raises an important question: what is the difference between financial guidance and financial advice? Moreover, why does that even matter?
These are important distinctions here, and consumers need to understand this.
A crucial difference
At face value, guidance is similar to advice. Both have the aim of helping people to better understand their financial needs and the options available to them.
Guidance is free, unregulated impartial recommendations to help someone make decisions about their finances. It is generic and suggests what an individual “could” do to organise their financial affairs to meet their wants in retirement their financial situation.
This guidance could include information about different types of investments or understanding pension regulation.
However, it does not take into account the complexities of a person’s financial situation or their long-term goals. Furthermore, guidance is unregulated, which means any organisation can offer it.
In contrast, independent financial advice is regulated by the FCA and involves a detailed analysis of an individual’s finances and financial goals. Following this analysis – an in-depth dive into all incomings, outgoings, savings, and investments – an adviser can make tailored recommendations about relevant products and services. What’s more, they help clients to develop a long-term strategy to achieve their financial goals.
As advice is regulated, clients who receive it are protected by the Financial Ombudsman Service and the Financial Services Compensation Scheme.
Making a decision
For many savers, the decision to use either guidance or advice will come down to cost.
However, advice is not exclusively for those in the highest wealth brackets, as we explore in a recent blog.
Instead, access to independent financial advice should be for everyone, regardless of their circumstances. Which is why at My Pension Expert, we only charge clients if they decide to pursue the tailored recommendations of our expert advisers.
This allows the individual to carefully consider their options and talk through them with a qualified, financial adviser. Should they choose to follow the adviser’s recommendations, they can do so safe in the knowledge that they are working with an adviser that is regulated and responsible for putting the client’s interests first.
Parliamentarians and regulators alike are right to encourage Britons to better understand their pensions. However, in our opinion, guidance should not be seen as a substitute for advice. It should be a means of building strong foundational knowledge. Thereafter, whenever possible people should seek affordable, accessible, independent advice.
Ultimately, there is simply no substitute for the benefits and security that come with advice. And if you want to speak to an independent financial advisor, get in touch with the friendly team at My Pension Expert.