The financial services industry is preparing to say goodbye to the Money Advice Service following Chancellor George Osborne’s Budget announcement to scrap it. The Chancellor revealed a new pension guidance body will be created by merging some elements of the MAS with The Pensions Advisory Service and Pension Wise.
The aim is to provide a single point of contact for consumers’ pension queries, thereby reducing the costs, duplication of services and confusion that comes with the current system. The new body is expected to be ready by April 2018. But can it avoid repeating past mistakes? And will it be tarred with the same brush as the MAS?
A catalogue of errors
The MAS courted controversy almost from inception. Initially set up in 2010 as the Consumer Financial Education Body but rebranded to the MAS in 2011, many advisers took umbrage at the word “advice” in its name. Their outrage at the muddying of waters between guidance and advice was exacerbated by the 2011 TV advert in which the MAS claimed to offer free, unbiased, independent advice.
Advisers partly fund the organisation through a levy imposed on the financial services industry and many felt their rising contributions were being wasted by a quango that had no clear remit or accountability for its spending.
Fowler Drew director David Anderson says: “Having to pay for an organisation that provided a watered-down version of what advisers themselves provide was never going to go down well.”
A 2013 Treasury select sub-committee report laid bare the extent of the MAS’ overspending on marketing and salaries. The report questioned the quality of service provided and branded it as “not fit for purpose”. Another report from the National Audit Office found the MAS’ money guidance service did not provide value for money. This all paved the way for an independent review led by Christine Farnish, former chief executive at the National Association of Pensions Funds and former consumer director at the FSA.
Before the Farnish report was published, MAS chief executive Caroline Rookes appeared to question the ethics of regulated advisers at a Labour party conference in 2014, provoking an adviser backlash. Then the MAS was sidelined from delivering the guidance guarantee supporting pension freedoms. Anderson says: “Its inability to deal with more complex issues, even when not actually providing advice, was underlined when it was overlooked for the job of providing pension freedoms guidance in favour of Pension Wise and The Pensions Advisory Service.”
Since last year’s publication of the Farnish review, the MAS has been restructuring in line with the review’s proposals to cut staff, reduce its budget by up to 38 per cent and focus on debt support.
A fresh start or legacy problems?
Aegon head of pensions Kate Smith argues that to be successful the new pension guidance body must fill gaps in the market and complement, not compete, with pension providers and advisers.
She says: “The Government needs to ensure the new pensions guidance body doesn’t duplicate or obstruct market developments, or create unnecessary costs. The Government also needs to set in stone success criteria and publicly report on these, so that value for money can be assessed. It needs to make clear how consumers and other stakeholders benefit from the new service.”
Mattioli Woods consultant Alex Brown is frustrated it has taken so long for action to be taken over the service’s failings, only for it to close when “finally given a chance to get going”.
Brown says: “There is a natural objection to the MAS within the industry. The problem was the hike in levies, and a lack of transparency and accountability as to what it was doing. If advisers saw this money being used in a positive and proactive way, the industry as a whole would have been more supportive.”
Brown wonders whether the new body will be tainted by its association with its predecessor. He says: “Advisers wouldn’t want to see it as a rebrand of what it was before. There’s a lot of negative sentiment around the MAS so the new body needs to get off to a good start.”
But Anderson believes the new body is doomed to fail. He says: “There are two reasons for this. Firstly, however much you spend on marketing the general public do not appear to have an appetite for learning when it comes to finances; as evidenced by the very poor take-up rate for pension guidance.
“Secondly, and most crucially, guidance should ultimately reveal that, for most people, decisions around funding retirement are too complex to be undertaken without proper tailored advice. Creating new bodies that will fall short of providing the type of advice that the retirement challenge demands is wasteful in the extreme.”
Integration not dislocation
Sanlam UK head of employee benefits Elliot Silk argues the MAS failed because it was not linked to the provision of advice. He says: “Consumers are given a degree of education and general information but are not passed on to anyone, so you’ve got to motivate them to take the next step when it might have already taken them a year to consult the MAS.”
Silk warns the new body must be clear in what it provides and avoid putting “advice” in its name. “It really needs to be a first port of call offering education, consistency of experience and enough information for people to either execute the transaction themselves or realise they need advice. But it needs advisers to support it as well. The industry should own it as the industry will benefit from it. There does need to be a levy on the industry otherwise we as advisers can’t expect to have a say in how it’s run.”
“However much you spend on marketing the general public do not appear to have an appetite for learning when it comes to finances”
Intelligent Pensions marketing director Andrew Pennie agrees any new guidance body needs to have closer links to advice. “It is the guidance system that has failed as it did not point people in the right direction when they needed advice. Wake-up packs were set up to do a similar thing to the MAS; everyone was doing the same thing and none of it worked. It was about throwing communications at people but that was not driving the right outcomes.
“People need to understand the limits of guidance which tells you what you could do, but doesn’t tell you what you should do and how you should invest – and that is where people are going to make mistakes.”
Improving motivation and financial capability
With the MAS gone, the new body will have a key role in financial capability – equipping people with the ability to manage their money. So what challenges lie ahead?
Capgemini Consulting wealth, long-term savings and insurance principal Rod Bryson says: “Many people talk about education being crucial to financial capability but there are many well-educated individuals who can’t fathom some of the products available today.
“Education is only part of the challenge. Organisations need to take a long, hard look at the outcomes these products and services are delivering and ultimately need to think about how they simplify these outcomes, so consumers find them easier to understand and that outcomes can be easily measured.”
VouchedFor managing director Adam Price thinks too much focus has been on the supply of guidance but not enough on the generation of demand. He says: “The gap between need and demand is much bigger than that between demand and supply. It is extremely expensive to motivate people to take action on their finances, as evidenced by the MAS’ huge marketing spend. Most participants in the advice industry lack either the ability, incentive or means to generate consumer demand at meaningful scale.”
Some in the industry feel the Government’s focus on guidance is the problem and would prefer an “advice voucher” scheme instead of a guidance body. Pennie says: “The Government could give people advice vouchers and say: ‘here is a list of providers where you can use them’. People like something tangible.” He thinks sending advice vouchers four or five years before retirement would prevent many people from making mistakes before they retire.
Anderson also supports a voucher system. He says: “We already have advisers with the skills and expertise to deliver the right outcomes. That their services come at too high a price for some reflects the complexity of the current retirement landscape. A voucher system would subsidise the cost and retirees would get something of genuine value for free. The public loves a voucher.”
For now, the industry is waiting to see how the new pension guidance service will pan out. Barnett Waddingham partner and head of defined contributions Mark Futcher says: “I don’t think a new guidance service can be built until we know the regulatory environment in which it will operate. We have had the Financial Advice Market Review and we are waiting to hear if robo-advice will be allowed.
“A robust service needs to answer three questions: Which option will the individual use to access benefits? When will the individual take benefits (recognising this could be at multiple points)? And who will the individual use to access their savings?”