April 2008

Engage with your money

Building a strong foundation of financial education has never been as high a priority as it is today. Rising levels of personal debt coupled with a dwindling savings culture means people need to engage with their finances if they are not to spend their retirement in real financial peril. While financial education is now being tackled as part of the school curriculum what help can be given to those who have left the education system?

In March Aegon UK chief executive Otto Thoresen revealed the findings of his government backed review into generic financial advice. In it he recommended the launch of a Money Guidance service providing people with impartial information on money issues. The service is aimed at those people who would not necessarily engage with the financial services industry.

The report identified a gap in the market in that while there is debt advice for those who are in crisis there is nothing available to prevent those people from getting into trouble in the first place.

"We need the service to be impartial, supportive and preventative," said Thoresen. "We need people to take action to prevent a crisis in future rather than when they are already in crisis and have fewer options. This service can help them be better prepared for fluctuations in their income."

Developing understanding

Rather than providing specific product advice the Money Guidance service looks to make users more equipped to deal with the financial services industry by offering guidance as to where their problems might lie and pointing them in the right direction for the solution. Thoresen admits that the financial services industry is complex and hopes that by using the service people will feel more confident about seeking professional advice.

"We're talking about helping people to understand the language better," he said. "If you are put off by jargon then this may affect your confidence when dealing with financial services professionals. By speaking to a Money Guidance adviser in the first instance, the client can discuss their issues, find out where they need to go for advice and the questions they will need to ask. This increased level of understanding makes the client more likely to move on to engage with whatever part of the industry they should be engaging with. Of course if they find themselves getting stuck again then they have the option to phone the service again to get more clarification."

How will it be delivered?

The proposed service would be easy to access via internet, telephone and face to face meetings and in the first instance would be free to use as costs would be shared between the Government and financial services industry. The report boasts some impressive stats and estimates that up to 19 million people could benefit from the service with projected savings of £15 billion being made over 50 years.

The initiative received an early boost with the Government agreeing to fund a £12 million Pathfinder project to determine how the initiative would work in practice.

The report's findings have been welcomed by many within the financial services industry who see the proposals as building a bridge between consumers and the financial services industry.

"I think this initiative has been a long time coming as I think it's a real priority that that sector of society has access to a reliable and unbiased source of financial information," said Martin Bamford, joint managing director of Informed Choice. "I also think it will help advisers as we find you tend to have a more productive relationship with someone who is fully engaged with their finances and is able to ask meaningful questions."

Chris Cummings, director general of the Association of Independent Financial Advisers (AIFA) agreed there was real need for such a service and urged advisers to embrace it.

"It is clear that people need help to manage the transition from debt-to-budgeting-to-saving and we need to promote personal responsibility," he said. "It needs to be more than a debt management service. It needs to re-engage people and develop a savings culture."

However, while largely welcoming the proposals Cummings was quick to say that the service should be tightly controlled if it is to stay true to the principles of being fair and unbiased.

"I think there's real use in being able to just pick up the phone and talk to someone about these issues but we need to be careful that staff don't stray into the territory of recommending products," he said. "The guidance given will need to be tightly monitored."

Who should deliver the advice?

The report states advice will be given by "trusted intermediaries" and this could include everyone from registered charities, financial advisers or even product providers.These agencies would be expectedd to work in partnership to deliver the service. However, if the service is to remain impartial care needs to be taken as to who gets involved.

"A lot of people in financial services do pro bono work and having these people involved would be helpful," said Cummings. "We would like to develop a national programme to help financial advisers get involved."

One agency ideally placed to get involved in the scheme is the Citizen's Advice Bureau. While primarily known for its work in debt counselling, the charity has also launched its Moneyplan pilot, a face to face service offering generic advice and so has plenty of experience to offer.

"Our Bureaux do a lot of debt work and see people making decisions without any real advice or help on planning finances," says Jackie Nowell, head of partnership development at the charity. "They get into problems and that's when we see them. We thought it would be good to give advice to help them plan in life stages. Many bureaux already use solicitors who come in on a weekly basis and we linked up with the Personal Finance Society to get IFAs involved as well. We had to be clear there would be no product sale whatsoever. Advisers needed to explain to people their options and help them decide on the next steps. We have implemented tough standards to ensure advisers are motivated and don't abuse their position but we found IFAs were happy to do this as they felt they were giving something back to the community."

The CAB is currently part way through a further two year pilot of the scheme and has extended it to 30 bureaux in England, Wales, Scotland and Northern Ireland.

Nowell believes the success of this pilot demonstrates the need for a generic guidance service and genuinely believes that people will use it.

"We are finding that mainly older people are coming to use the service - people who want to plan for retirement or those in retirement who may for instance be worried about funding long term care," she said. "As a result things like pensions and equity release are big topics for us. We have shown that there is an absolute need for this. People will use the service to think about planning their finances - they aren't quite as head in the sand as you think."

Widely accepted

While the proposed scheme had been widely accepted by the financial services industry there have been some notable voices of dissent. While the report quotes encouraging figures as to how many people will use it and how much money will be saved many advisers remain unconvinced.

"The Thoresen Review recommendations are based on the premise that people will voluntarily go and seek advice. However, people only ever seek advice when they have to or when they are being sold something," said Adrian Shandley, managing director of Premier Wealth Management. "I just don't think people will use the service to the levels they expect and even then they will have to go elsewhere to actually get the product. "Personally I don't see why we should have to pay for this service. Advisers used to be able to give these people a good service before excessive compliance and regulatory regimes priced this group of people out of our advice. I think the whole thing is sadly misguided."

Whether such fears will come to pass remains to be seen. While the service has got off to a good start with the announcement of the Pathfinder decisive action needs to be taken to get the service off the ground. If this is not done then precious momentum could well be lost and much hard work will have gone to waste. It would seem time is of the essence.

"We would like to see it declared definitely that it will be rolled out nationally," said Nowell. We need absolute commitment from the government that it will go forward. It needs to be a long term thing otherwise it's a waste of time."

Helen Morrissey
Editor - Retirement Planner
Incisive Media