At the beginning of the month, Aegon UK chief executive Otto Thoresen’s review into generic financial advice was published, setting out his recommendations for a national money guidance service.
The review supports one of the Financial Services Au-thority’s key aims – improving financial capability. It is densely packed with research findings and proposals but the speech Thoresen made when launching it sets out its 10 key recommendations in a clear and concise way.
Thoresen explains that the term money guidance was chosen as preferable to generic financial advice because not many consumers understand what generic advice means and the word financial is a turn-off to many.
With challenges such as underprovision for retirement, high debt and turbulence in the financial markets, it’s vital that the service fills in the blanks in the public’s understanding of financial services quickly.
Thoresen’s first recommendation is for services to help consumers to budget, giving them guidance on borrowing, savings and insurance and helping them with retirement planning. A jargon-busting service to demystify the arcane language often used by financial product providers is also mentioned.
Next, Thoresen says the service should not make product recommendations that step on the toes of regulated firms’ advice.
The third recommendation reaffirms the five principles that lie at the heart of the service. These are that customers must feel it is impartial and on their side, that it supports and guides them to make their own financial decisions, that it promotes budgeting and planning, that it should be available to everyone who needs it and that it is free to users and sales-free, although it should often result in the purchase of products.
The fourth recommendation calls for a partnership approach between existing organisations and fifth, there should be a central body to direct strategy and set standards.
Next, Thoresen recommends that the service be delivered through a variety of channels, primarily via the internet, over telephone and face-to-face.
The seventh recommendation is that the national money guidance service’s marketing strategy must appeal to a broad range of groups and include national and regional campaigns. A brand should be developed that encapsulates the principles of the service – especially that it stands up for consumers and offers sales-free advice.
Recommendation eight is that the FSA should be the body that takes the service forward. Next, Thoresen recommends that the cost of the service – estimated at £49m a year – should be funded by National Savings & Investments plus a levy on all FSA-regulated companies and consumer credit firms regulated by the Office of Fair Trading.
Finally, Thoresen recommends that a two-year path-finder project be set in motion to keep the review’s momentum going. In fact, the FSA has already announced that it will lead the pathfinder project to build on its national financial capability strategy.
At first glance, brokers may think it’s unfair for them to be asked to pay more so that Joe Public can be given extra guidance on money issues.
But this is not a consultation paper – it’s the real thing and its ideas are going ahead. We might as well focus on the possible benefits.
Thoresen has calculated that over the next 50 years, his measures will save consumers £15bn, the financial services industry £5bn and the government £6bn.
We also have to understand that although guidance activity is supposed to be sales-free, in many cases it is bound to result in the sale of products. These are likely to be advised sales using the services of brokers and so hopefully will boost the market.
Since we are in the throes of a financial crisis triggered by defaults on US sub-prime loans, we should admit that having better informed consumers who can manage their money more effectively would help to create a more stable mortgage market.
Perhaps the challenge is to ensure that the national money guidance service is delivered in a cost-effective manner so that it benefits consumers and brokers irrespective of their size and wealth.