Cicero Policy Briefer

Issue 9, February 2007

Financial Capability: the Government’s long-term approach

By Laura Chisholm

On 15 January, the Treasury published its ‘long-term approach’ to improving financial capability in the UK. To take forward this agenda the Government has undertaken to move on three separate actions to this end:

• Establish an independent feasibility study into the provision of a generic financial advice network. This will be chaired by Otto Thoresen, CEO of AEGON UK.
• Set up a ministerial group, chaired by the Economic Treasury, to oversee and coordinate the Government’s work.
• Publish an action plan by the end of 2007 setting out how financial capability can be integrated into existing services. This will draw on the work of both Otto Thoresen and the ministerial group.

The conclusions of Otto’s group will likely provide a roadmap for future government action in this area. The Government has identified a gap in the market for “personalised but unregulated financial advice”. This is the gap that exists between regulated advice and the crisis advice provided by debt counseling services.

Otto’s group will be looking at how best to provide generic advice to fill this gap. His terms of reference involve funding, accreditation, advertising and branding. Of course, the most fundamental task is to establish how best to serve the different types of consumers that the Government wishes to reach. There are likely to be different strands to this work, perhaps delineated along income lines—the Treasury highlights in its document that consumers who are “especially vulnerable” to making poor financial decisions will need to be effectively targeted.

HMT supports the Financial Services Skills Council’s analysis of the elements needed for a generic financial advice process. This includes establishing the consumer’s key financial concerns, agreeing priorities and options and referring to further financial sources or advice. In a Which? survey in 2002, 65 per cent of consumers identified there being ‘no pressure to buy’ as a ‘very important’ factor for generic advice—the highest number for any quality. This reflects the lack of trust in the financial services sector as well as the lack of confidence—a consequence of the information asymmetry between industry and consumer.

The Government is keen that the advice takes a holistic approach and looks at eligibility for benefits and tax credits. Along similar lines, one of the main strands in the strategy involves utilising existing or planned initiatives. The Treasury is determined to use Child Trust Funds and Personal Accounts as tools to make personal finance relevant at key points in an individual’s life.

The BBA’s comment that the strategy needs to build on what is already in existence reflects the industry’s concerns about who will be expected to fund the Government’s plan. It is true that while the Government has established a ministerial group to work across departmental boundaries, there is no similar plan to look at joining up the myriad of private sector projects on financial capability already scattered around the country.

There is certainly a lot of work to be done to get this initiative off the ground, but the rewards cannot be overestimated. Drawing up a plan to provide quick, easy and simple access to financial advice that is individually tailored, not regulated and affordable—there won’t be many people who envy Otto’s task.

Laura Chisholm can be contacted on +44 (0)20 7665 9536 or click here to email.

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