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Who will pay for financial advice for all?

Should the industry pay for financial advice? There is an unlikely collection of voices arguing that would be the only way the Government could achieve its aim of tackling issues such as financial exclusion and the lack of access to financial advice.

Britannic Asset Management is one such group. In its recent response to the Sandler review it called for the Government to provide free financial advice to the public on a means-tested basis.

It believes this would be a more effective use of tax payers money than initiatives such as baby bonds.

A report published last week from the newly-founded consumer think tank the Consumer Policy Institute has also concluded the way to tackle financial exclusion would be for the industry or the Government to pay for generic advice, providing a financial healthcheck to consumers.

This would not strictly speaking be independent financial advice of the variety that IFAs provide to their clients, but a more general service providing broad advice rather than specific product suggestions.

The report, Where Next for Financial Advice?, was written by FSA Consumer Panel member Jane Vass and funded by the LIA. It says: “Government funding together with industry support would be necessary.”

It then concludes: “Although improving the quality and simplicity of products will help, it is unlikely to be the whole answer. Some form of free advice service will be needed.”

LIA director of public affairs John Ellis says the idea has merit and should be explored further. He says: “I think the industry would be willing to take part in this. I do not see how it could afford to say &#39no we do not want to have anything to do with this&#39. Initially, it could well be reluctant but we have got to talk about tackling this problem.”

The idea was first raised by Liberal Democrat trade and industry spokesman Vincent Cable at his party&#39s conference in Bournemouth in September.

He suggested that such a fund would be an answer to the problem of people not having access to independent advice.

Cable went much further with his proposals than the report from the Consumer Policy Institute. He believes that not only a minimal level of advice along the financial healthcheck idea should be available but all advice should be paid for.

He says: “If the industry has any sense of long-term interest it is something they should be willing to take part in.”

Cable plans to raise the matter in Parliament in the near future and hopes to engage the industry and the Government in a debate about the need to tackle financial exclusion. He is calling on the ABI to take a lead on the issue.

For its part the ABI agrees there is a need for a public debate about financial exclusion but is reluctant at this stage to commit its membership to paying for advice.

ABI head of media and political affairs Alan Leaman says: “Bringing appropriate advice to the mass market is a key challenge for policymakers. We need a proper public debate on how this can be done.”

Leaman sees a partnership between Government and industry developing to tackle the problems of the savings gap and financial exclusion.

But given the current state of affairs with providers struggling under the constraints of the 1 per cent cap, some say it would be bit too much to ask for them to cough more cash to pay for advice.

Clerical Medical head of strategic marketing David Shelton says: “I do not think you can expect any industry or sector to provide a free service. If the 1 per cent cap on charges were to be reviewed and perhaps raised to 1.5 or 2 per cent, then one would expect providers to start offering faceto-face advice again. If you are going to give financial advice, you have to have the resources to do it.”

Scottish Life&#39s head of communications Alasdair Buchanan agrees with Shelton, saying it is unreasonable to expect providers to pay for advice. He thinks, however, the idea of workplace located advice paid for by employers has some merit.

Buchanan says employers could be encouraged to start paying for advice and the Government could do this by removing tax disincentives that currently exist. At the moment, if an employer were to pay for financial advice it would be treated as a benefit in kind and therefore become taxable.

He says: “It is entirely consistent with the Government&#39s wider policy objectives so there should be no significant barriers to that.”

Ellis says another possibility would be for advice to be an optional extra on basic products such as household insurance. As part of the investment, consumers could have access to basic financial advice each year of the policy.

It seems unlikely that the industry is going to jump on board and start handing out free advice to all-comers. What the report has accomplished is to spark debate about how to tackle the problem of financial exclusion.

All those involved agree that such a discussion is necessary. It is probably too early to decide whether the answer is for the industry to pay for financial advice or if the Government will be convinced of the need to pay for it.

But the very fact the problem has been recognised and is being publicly talked about surely must be regarded as progress.

Aifa director general Paul Smee says: “Anything that works towards offering access to advice is worth pursuing but this sort of proposal would come with strings attached and IFAs would have to work out if the strings are a price worth paying.”

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