Parliament is back from its summer break, meaning the new single financial guidance body starts again on its long and winding road to approval.
We know it will not be called the single financial guidance body. The Financial Guidance and Claims Bill gives ministers the power to decide the name and change it by regulation. The Government will not announce that name until the body is established in case thieves steal it while they can.
The single financial guidance body will replace three existing organisations:
- The Pensions Advisory Service: Founded in 1983 in response to an interview on Money Box. It gives advice on pensions over the phone and, now, online
- The Money Advice Service: Founded in 2010 to improve the way people managed their money. It gives free and impartial money advice to people online
- Pension Wise: Set up after pension freedom in 2015 to provide advice on pensions, as promised by then-chancellor George Osborne, through Citizen’s Advice and the Pensions Advisory Service.
This was not in reaction to massive public demonstrations chanting “What do we want? A single financial guidance body! When do we want it? In due course!”
Its stated purpose is to “improve efficiency, reduce duplication and deliver better value for money”. It makes your heart sink, doesn’t it? But in fact, there is another purpose.
Look at what we are losing. The Pensions Advisory Service, the Money Advice Service and Pension Wise: “advice”, “advice” and “wisdom” – much of that wisdom given by two “advice” bodies. All will be replaced with “guidance”.
The plan is part of giving the financial services industry a monopoly over the word “advice”. It wants any help with money that is not regulated advice by a regulated adviser to be called “guidance”.
The industry has now defied the dictionary and decided that guidance tells people what they can do, while advice tells them what they should do. I hope the single financial guidance body will come to see advice versus guidance as a ridiculous distinction. The Government already does. Part of the new body will deal with people in serious debt. And they will be given advice. Indeed, the new body will give “debt advice, money guidance and pension guidance”.
The financial services industry does not want to have anything to do with people in debt, so it is quite happy for them to be given advice. But when it comes to those with positive bank balances, it is happy for them to driven towards independent or restricted advisers.
Once the single financial guidance body starts giving people money or pensions guidance it will soon realise that it needs to go further.
Suppose its pension guidance included something on trackers versus active management? It would have to say trackers are cheaper. It would have to say many active funds are, in fact, closet trackers but more expensive. It would have to say no active fund beats the market in the long term. Because all those things are true.
It might add that the profit margins on actively managed funds average 36 per cent. All factual stuff. Straight from the damning report on how asset managers look after £1trn of individual investors’ money published by the FCA last November.
Although the regulator says it is not positively in favour of passive funds over active ones, it is in favour of low cost. It does promote honest information about closet trackers. And it is clear that past good performance is not a guide to future performance – though bad performance does persist.
Its predecessor, the FSA, established that in the early part of this century, but it is still routinely denied by the active management industry and many advisers.
The other problem with a purely guidance service is that it will not just be a poor relation of advice but the place all those poor relations go if they have less than £30,000 to invest or who want to save less than £1,200 a year. It is difficult to find a good regulated adviser to take them on and, if they do, it would probably be too expensive to be worthwhile.
So “advice” or “guidance” is not just a matter of semantics. The majority of the population who have to use it will not want the single financial guidance body to give them information on the many complex choices about what they can do. They will want it to cut through years of complexification by the financial services industry and politicians, and tell them what they should do. Because no regulated adviser will be willing to do that
I will, of course, continue to give people advice. I will not make recommendations on particular regulated products, as that requires authorisation. But I will advise about the difference between trackers and managed funds; about the importance of keeping charges as low as possible; about tax, benefits, how to find a good independent adviser; about how to avoid being scammed. It is my job.
I do that because, in 40 years of doing my job in one form or another, I have never been asked for guidance. I am frequently asked for advice. And I give it.
I hope a courageous single financial guidance body will also give advice. That it will present the crucial facts and show a clear route to what people should do, not just what they can do. Even if it has to call it “guidance”.
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programme. You can follow him on Twitter @paullewismoney