By the end of this year, the Thoresen review of generic financial advice will have reported to ministers on its proposals for the design of a national generic financial advice service which should ensure that people on low incomes can get access to good quality financial advice.
The Government will then publish an action plan on how financial capability can be integrated into existing services, including consumer organisations such as Age Concern, Help the Aged and Citizens Advice as well as financial services companies.
In some ways, generic financial advice is an unhelpful description of what is needed. People need generic financial education and information, preferably starting from an early age and then geared to life stages.
However, at some point they will need particular financial advice related to their personal circumstances. A qualified financial adviser will make recommendations on the course of action to take after a full fact-find.
The trend among consumers is to borrow more and save less. Low interest rates, rises in property values and ease of obtaining loans mean that consumers, including many young people, are tempted by short-term spending rather than long-term financial planning. Any generic financial advice programme should try to redress the balance between short-term and long-term planning.
Many vulnerable people do not need advice on financial products. The advice they need relates to developing basic financial skills, shopping around to reduce unnecessary expenditure such as energy bills and claiming benefits.
A slimmed-down version of the current advice process as defined by the FSA conduct of business rules which results in the recommendation of solutions would not be appropriate for these people. They do not obtain financial advice currently because they do not approach qualified financial advisers or because financial advisers are skilled in recognising very rapidly those who do not have any spare cash to invest. Qualified financial advisers do not see themselves as debt counsellors.
Consumers are exposed to more advertising that promotes short-term lending than longer-term planning. The immediate fruits of short-term borrowing are more attractive than the deferred benefits of longer-term saving and protection. Given high levels of consumer debt and the low level of saving in the UK, any generic advice programme should highlight the importance of planning for long-term financial goals.
There have been calls to provide a national advice service but the costs to the taxpayer would be enormous. For example, according to the National Audit Office, careers guidance to young people in 2004 through the Connexions Service cost £450m and required 7,700 advisers and other front-line staff.
Direct provision of generic financial advice would be an even bigger project because it would be aimed at a wider group with more diverse needs, including, for example, school leavers borrowing to finance further education, young adults wanting to get a mortgage for their first home while still saddled with student loans and families trying to understand the intricacies of family tax credit. It would be hard to target the right people and refine advice appropriately.
The most effective generic advice programme would build on existing provision and give a strong message about the advantages of long-term planning, including saving, investment and insurance. The content should focus on developing skills – identifying needs, planning and budgeting – rather than recommending products. It could also provide a type of referral service by informing people of the right path to take after a high-level view of their circumstances. Many existing organisations could perform this type of service.
Any generic advice that becomes specific to the individual’s circumstances carries greater responsibilities and could become liable for anything that goes wrong. Once consumers have a clear idea of their needs, commercial providers of regulated advice should be easy to find.
Recent controversies over official leaflets giving information on the guarantees of final-salary pension schemes have shown that apparently innocent and restricted information can give rise to significant liabilities, even if it is not considered to be regulated advice.
Tony Reardon is principal of Reardon Consulting.