Cicero Policy Briefer

Issue 12, May 2007

Delivering financial capability to those who need it most

By Jacob Coy

The Thoresen Review will now fully consider the consultation submissions on delivering generic financial advice in the UK as part of the wider strategy to improve financial capability. There is no doubt that the population would benefit from a broader base of knowledge about financial matters. The FSA Baseline Survey, while presenting a mixed picture of some good and some bad, gave us a very good idea of where improvement is needed. The trend here is consistent with one we've seen in other areas—the poorer one is, the lower the level of financial capability.

This correlation is an important one, because it is precisely those who have the fewest resources who could most benefit from a mastery of how to best employ those limited resources. But how can we get that knowledge to those people? Is there a kind of generic advice regime that can be deployed which will empower these people? It is a vexing question and one that has been considered by the Government, Parliament, FSA and industry for a long time. While all of those bodies acknowledged the need (to varying degrees), everyone ran scared from the cost of the solution. This was wrong. The cost isn't the issue; it's the details of implementation that need the most attention.

If we as a nation want to truly prioritise financial capability, then we will find the resources—the capital, the people and the popular will. I am writing from within the Square Mile, the global capital of financial markets, in a country that has built a Diamond synchrotron, and will continue to lead the world in helping developing nations. I think that we can teach people about interest rates and the fluctuations in the value of stocks.

But the real challenge is how to optimise the use of the resources we already have. We would be mad to try to create an all new delivery network to provide these services on a universal basis. In fact, I would suggest that Otto's biggest challenge is to take stock of what's already in place and consider how we can make it work to this end. No doubt some catalysts for change will need to be put in place—but trying to reinvent this big, new thing on top of a bunch of other programmes, facilities or efforts is ill-advised.

Fundamental to the question is what we want to come out with at the end. Do we want a truly universal programme of generic advice for every person, or should it be targeted at those who are not already receiving some kind of financial advice? Once we know the answer to this question, then the industry needs to understand what it can contribute in good faith.

The near obsession with the so-called 'full advice model' doesn't serve everyone and was never designed to do so. The industry admits this, but doesn't seem to see the upside of more educated consumers outside that regime. I hear people talking about it as being “highly successful” and want to ask: “For whom?”

The industry needs to start thinking more progressively about how it can face up to financial education for the mass market. It can't complain about the outcome if it doesn't play now. For its part, the Government has at least acknowledged its responsibility and begun to set things in motion. While I do see some good work in the industry, there is much more to be done—and it needs to be proactive.

ProShare's Workplace Financial Education Group (WoFED) is the germ of an important niche solution which the industry is in a unique position to provide. Initiatives like this need to become much more commonplace. If the industry doesn't start taking responsibility and thinking constructively about how it can use its own resources or tap into its talent, the Government may take the responsibility for it, just as it has with Personal Accounts.

Yes, it's about the money! But it's not about paying for the solution—rather, how to best spend it.

Jacob Coy can be contacted on +44 (0)20 7665 9535 or click here to email.

Back to main policy briefer