However, if Thoresen’s assumptions should prove accurate, GFA, or Money Guidance as he has renamed it, could prove to be the biggest introducer to the IFA sector in years. It could produce four million customers a year, engaged and informed and appreciating the value of independent advice.
Generic financial advice is unregulated financial advice. Thoresen describes it as information and guidance on budgeting, savings and borrowing, insurance, retirement planning, tax and benefits and jargon-busting.
The service will not recommend providers or products or advise users to vary the terms of an existing agreement. It will signpost customers to other services, notably in the IFA (but not provider) sector. The service will disclose the pros and cons of actions or inaction and indicate what people in the customer’s situation would consider. That, though, is the limit.
Delivery will be through a combination of online, telephone and face-to-face. Some people need technical answers, others a more holistic service. GFA will be general but also specific. TPAS notably provides technical pension advice.
Thoresen lays down five principles. GFA must be impartial from Government or the industry, support and guide, prevent future problems, be available to all and be sales-free.
The service will be 50 per cent Government and 50 per cent industry- funded, although the industry will include consumer credit licensees and National Savings.
The service will use partners but ultimately will be run publicly, initially by the FSA. It will have the task of developing the service brand, fixing the scope, content and quality, managing the funding and supporting or disciplining providers through an accreditation process and training help.
Cost-benefit analysisWhat is staggering about the Thoresen report is the cost-benefit analysis. Net present value gains for the industry of between £3bn and £5bn over the next 51 years and for society of £344m challenge credibility.
Yet the figures from the pilot study bear this out. In total, 80 per cent of users did something and 40 per cent took specific regulated action within a week. Fifty per cent of those referred elsewhere had followed it up within a week.
Increased confidence and understanding should improve users’ finances and their ability to engage with the industry.
Seventy per cent of users were very likely to recommend the service and only 5 per cent described the service as poor or worse.
Observers of the pilot considered that the service quality could have been better and accreditation could address that. Currently, generic financial advice can be offered by anyone, however ignorant. That should improve with a national accredited service and developed advice protocols.
Seventy-five per cent of non-users would take advantage of the service, a third of them were “very likely to”, which translates to eight million users.
Beware, though. Half of those contacting one pilot provider wanted help complaining. This could lead to referrals to claim management businesses if IFAs cannot provide this service.
Generally, though pilot customers came from a broad range of the population and often concerned savings and investments. This matched the survey work on demand.
The claims made by Thoresen appear unbelievable at first sight, they match the experience of other trials, notably Axa Avenue. There, budgeting and general approaches to savings and pensions seemed to pay off spectacularly for the selected participants.
This approach and that of other initiatives is much more effective than the FSA website and other publications. Personal engagement will always generate a greater likelihood of action.
Targeting the usersCurrently, generic financial advice is delivered to people with problems and delivered by entities created to confront them, notably charities and debt counselling.
Thoresen believes in targeting everyone. If the service continues to be aimed at people in trouble, stigma will prevent use. Besides, the comfortable also need advice.
The pilot saw people referred through other agencies to the service. If Money Guidance becomes the norm, one could see the development of a population of ready-to-wear IFA customers.
The IFA opportunityThe first myth to debunk is the idea that customers will go from generic to basic/primary advice.
First, the service will not refer customers to providers, only advisers.
Second, people will not go from a holistic impartial service to assisted purchase.
That leaves existing trusted advisers (tied, multi-tied or whole-of-market), banks or IFAs. Access problems to the former group will explain interest in the new service. IFAs stand to clean up.
The customers of the service will not necessarily be poor. The pilot showed take-up broadly evenly across all classes. Even assisting less well-off customers who have engaged with Money Guidance is likely to lead them to have more to invest in the future. Besides, there is a limited supply of high-net-worth customers.
A customer who has already discussed his affairs with a competent adviser beforehand should have developed the motivated approach to finance that will fit a quality middle-market IFA. Indeed, someone else may have done some of the fact-finding and client education already. Impartial generic advisers may well have explained the merits of the sector. They may even have provided the referral.
The national reach of the service and its use of inter-agency referral should bring a whole mass of population currently outside quality advice into a type of funnel.
Out of this could emerge clients with less debt and more investment engage-ment and appreciation of the quality of impartial advice.
Essentially, Thoresen is proposing the creation of partially state-funded and partially provider-funded introduction service with the added benefit of triage, general advice and fact-finding services included.
Thoresen recommends a pathfinder experiment over 18-24 months. Already, providers of generic advice, such as Citizens Advice Bureaus and charities, notably in the health-related area, refer clients to IFAs. Some customers use agencies because of poverty or debt but others just want help. Assisting a charity to develop technical competence could both be a worthy societal contribution and sensible marketing.
Aifa has already welcomed Thoresen. A financially healthier Britain through independent advice – it could almost be an IFA marketing slogan.