It was surprising given the standing of financial services in this country that one of the biggest consumer finance events in recent years has had little national press coverage. The Thoresen Review of generic financial advice was released at the start of the month to an audience consisting almost entirely of the great, the good, and business journalists.
But why should there have been more interest from the mainstream media? The answer is that the recommendation of a national financial service – Money Guidance – will benefit not only consumers but also the financial services industry and the Government. It will focus on budgeting, saving and borrowing, protection, retirement, tax and welfare benefits. Importantly, the service will be sales-free and refer cases to advisers.
Speaking at the launch, Otto Thoresen, chief executive of Aegon UK and author of the report, said: “Money Guidance does not make specific product recommendations that would take us over the boundary into regulated advice. Where… [that] is the right solution, the service will need to refer people smoothly and effectively to the regulated sector, having first equipped them with the skills and confidence to engage with the sector on a more equal footing.”
The Association of Mortgage Intermediaries (AMI), along with the Association of IFAs and the Association of Finance Brokers, are in absolute support of the Thoresen Review, but they do have reservations.
Richard Farr, director of AMI, said: “We are encouraged that the service will refer people to advisers, but we want to be clear that the service is no substitute for advice. We do not want people going to the generic solution and thinking they have been given advice. Nor do we want to see customers having one step too many on the road to advice. We must be absolutely clear on these points.”
Consumers are expected to be the biggest winners from the service. The overall benefits to the public will perhaps be even greater than the report suggested, as the number crunching for the report was carried out by consultants Deloitte & Touche, which admitted to being on the conservative side. It said: “We estimate that the resulting increase in consumer expenditure over the period 2009 to 2060 is £16.4bn in net present value. We also estimate that there will be a net increase in consumer holdings of financial products.”
These predictions are backed by empirical evidence of the benefits from Insurer AXA, which ran a year-long financial social experiment from October 2005 to October 2006 using 20 households in Brighton. Half were given access to independent financial advice while the other half were left to their own devices.
The 10 households that received financial advice were collectively £50,000 better off at the end of the experiment, with savings increases and debt reduction. In contrast, the households left to their own devices became collectively poorer. They spent a quarter of their savings and the group saw a 3% reduction in net wealth.
Benefits in kind
The financial services industry would also benefit from a more clued-in public more willing to engage with the sector. Here Deloitte & Touche estimates the benefits to be between £3.6bn and £5.5bn to 2060. The benefits to the Government would be broader. It would collect more in tax and pay less in benefit, especially pension credit. Again, Deloitte & Touche estimates this at £4.6bn to £6bn to 2060.
So who will run the service and what will it cost? Initially, the service will begin as a ‘pathfinder’ estimated at costing £12m. The pathfinder will be tasked with the detail of the plan, but as the situation stands, the FSA will run the service centrally with a series of partners delivering to the public.
The Review itself commissioned two prototype Money Guidance services in autumn 2007. In the North West of England, Consumer Direct delivered Money Guidance over the telephone, with face-to-face money guidance delivered in four Citizens Advice Bureaux as ‘Moneyplan’. In London, Staffordshire and South Yorkshire, A4e, a private sector provider and contractor of public advisory services such as Legal Services Direct, delivered both telephone and face-to-face Money Guidance as ‘Money Fitness’.
Teresa Perchard, director of policy at Citizens Advice, said: “Moneyplan demonstrated that demand exists and the real difference independent financial advice and guidance can make. Moneyplan is showing that there is particular demand for a national service from people who need advice on dealing with pensions and who have queries about equity release and insurance.”
The other big question is, of course, what will it all cost? The report recommends that costs are split 50:50 between industry and Government. Once again, Deloitte & Touche was tasked with coming up with figures. Its report warns: “The costs of service delivery are determined by a number of variables which have an impact on the timing of set-up and ongoing costs. This is particularly important when considering the net potential volume of the cost of service delivery.”
The analysis allows for three cost levels, low, high and base. These would result in average annual cost from 2009 to 2060, including set-up costs, of £33.4m, £77.8m and £49.7m. The later is taken as the most likely and the financial services industry would be paying half through an FSA levy.
It is probably fair to say the public is too often reluctant to engage with the financial industry – they neither understand nor trust it. But this impartial guidance service could finally provide them with a trusted gateway back into financial services. n