Research says the government, not the Financial Services Authority, should be responsible for financial education
Over 70% of financial services compliance experts believe consumer education is more important than tighter regulation when it comes to reducing mis-selling.
The findings are based on research by Huntswood Outsourcing Solutions, conducted in conjunction with Financial World, the magazine of the Institute of Financial Services.
The survey of 134 financial advisors dealing with mis-selling claims also reveals that 91% believe educating children in the basics of personal finance should be made compulsory in schools, in the same way as sex education.
David Brownlow, chief executive of Huntswood Outsourcing Solutions, says: “The role of consumer ignorance and consequent mis-buying in the widespread mis-selling problems we have in this country is borne out by the fact that currently only 40% of complaints to the Ombudsman in relation to mortgage endowment mis-selling are ruled in the policyholder's favour.
Huntswood's view, and that of the overwhelming majority of those directly involved in dealing with mis-selling claims, is that consumer education, not tighter regulation, is the main factor that will reduce mis-selling problems.”
Responsibility for personal finance education lies with the Financial Services Authority, which has pledged to cut back on its supervisory work to focus more effort on improving consumer understanding. However, 71% of the compliance experts surveyed think the government should take direct responsibility for financial education, with a public education programmefunded by the Exchequer.
The FSA's budget for consumer education is small, representing less than 5% of its total expenditure.
Brownlow adds: “Mis-selling claims are not the only problems associated with consumers' financial illiteracy; there is also the savings gap and the ever-increasing mountain of consumer debt. Financial literacy is therefore an issue of central economic importance and it is absurd that a government department is not directly responsible for it.
One suspects the government's decision to devolve responsibility for financial education to the FSA was motivated primarily by a desire to shift the associated cost on to the financial services industry, which funds the FSA.”