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Unanswered questions

When I first started out as a freelance journalist, a friend whom I had once helped with certain financial issues said I should add financial coaching to my business repertoire.

Well, why not? Many of the financial challenges that people face can be addressed through general guidance. In addition, one of the striking things about people is the sense of inertia they have about their financial affairs. They know they could save money but rarely how much they might save and they often don’t know where to look or, perhaps more importantly, what to look for, even in today’s internet age.

Mentoring would help get round that problem while providing an incentive to act at the same time. After all, if you have just got a quote for cheaper/better home insurance, what’s to stop you from clicking on the button that says buy now?

It also seemed to me that if, in the course of analysing a person’s finances and helping to identify areas they might want to address, obvious gaps emerged in relation to, say, retire-ment planning, mortgages or protection, they could be steered towards an IFA.

So, what has happened to this service? Well, every year, I help two or three people in the manner originally envisaged but I also turn down about 20 or 30 “cases” annually, where the problems might usefully be described as being in the “ground down by debt” category.

The issue is not that people cannot pay. They could always rustle up the dosh (one guy came to a first meeting with an envelope stuffed with £20 notes). The real question was how ethical it is to take £750 to £1,000 off someone who almost certainly cannot afford it.

In the end, I decided I could not take the money. But that in turn meant I could not justify spending up to 20 or 30 hours dealing with someone’s problems for free.

I mention all this because last week a Government-inspired review of generic financial advice very similar to the coaching/mentoring services I currently offer was published by Aegon UK chief executive Otto Thoresen.

It is an excellent report on the whole but there are a number of questions that are not discussed enough.

The first is that not all generic advice is “linear”. My experience tells me that simply supplying information does not necessarily lead a person to take action over their finances. You literally have to take them by the hand to achieve certain things. Even then, you have to go back again and again to ensure lessons have been learned and applied.

The £15bn savings referred to in the report really are there to be made. But the time involved in helping many of the individuals is likely to be greater – and more expensive – than what Thoresen allows for.

The second question is that attitudes to money – especially how it is spent – often involve a far wider range of psychological issues. Some may take months, sometimes years to resolve.

Of course, that is probably outside the scope of his review but my fear is that without some appropriate psychological counselling, a considerable number of Money Guidance clients will require help on a repeat basis.

My third concern is that of the inter-relationship between product and non-product-related advice. A significant part of any money saved by a household may be by better budgeting. But much of it will come by people switching from uncompetitive products to better ones. I foresee a lot of unhappy providers.

That does not necessarily mean that they should not contribute towards such a service. Here, the Thoresen review is 100 per cent right. At the end of the day, the industry stands to gain massively indirectly from better-educated and more aware consumers.

Then there is the question of who should run such a service. Thoresen recommends that the FSA should run it on the grounds that it already offers consumer-focused financial information and co-ordinates other financial capability activities with a range of industry and voluntary partners.

My own preference would be for a totally independent organisation to be established, funded both by the industry and the Government, with the FSA’s current education-related activities (and that part of its budget) transferred to the new body.

Finally, there is the critical question of how referrals are made. Passing someone on to a multi-tied agent or a bancassurer simply will not be good enough. Nor will explaining the difference between various advice categories be enough, even assuming the RDR does not manage to totally confuse everyone with its own proposals in that area. Don’t hold your breath on that one.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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