Anthony Hilton: Pension knowledge needs to go up a gear

Speaking at the Lord Mayor’s banquet the other day, Tracey McDermott, interim boss of the Financial Conduct Authority, used the car industry as an example of how sectors can raise their game to meet externally imposed standards — even those which, initially, seem impossibly demanding.

When the European New Car assessment programme was launched in 1997, the motor industry said the criteria were “so severe that no car will ever be able to achieve four stars”.

Yet, just four years later in 2001 the first five-star-rated car was produced.

But there is another story about the car industry which is perhaps more relevant to the challenges faced by financial services today.

Anyone in a new-car showroom knows they will be approached by a salesman and steered towards the most expensive car he thinks they can afford.

The customer, in turn, understands that a fair slice of what is paid will go to the salesman as commission with a bit more to help finance the glitzy showroom.

In other words, they accept that part of the car’s price covers the cost associated with selling it to the customer.

Now imagine if the motor industry were regulated in the same way as financial services.

First, the salesman would have to tell you he knew nothing about cars other than the ones in that specific showroom. If you sought someone with wider knowledge — preferably of every car in the world you could possibly buy — they would spend a lot of time filling in forms to establish that you really would not be happier going by bus and then charge you at least £500 for their time.

It is hard to imagine many people paying for advice on buying a car — as opposed to having it tested for mechanical soundness — unless they were struggling to choose between a Maserati and something else so expensive that advice seemed worth paying for.

And it is similar in financial services: the vast majority of people who need advice are unable to get it at what seems a reasonable fee.

The companies which could provide something which would be better than nothing are effectively barred from doing so.

And the professional advisers only want to deal with people with a lot of money — £100,000 or more to invest — because only then do their charges seem worth it.

But on top of that, owning a car brings legally enforced costs and responsibilities. The driver will have had to have passed a test — theory and practical — and follow guidelines on speed, safety and third-party insurance, with stiff penalties for failure to comply.