Cicero Policy Briefer

Issue 12, May 2007

Will the public drink from the fountain of generic financial advice?

By Terry Paul

Following the excellent recent Resolution Foundation conference in March, I have been dipping in and out of the think tank’s latest report 1 - and have been particularly following the deliberations regarding the Thoresen review of generic financial advice.

The Resolution Foundation report looks at the impact upon the financial services industry of improving generic financial advice to low to medium earners. Based on modelling undertaken by Deloitte, the report predicts an overall positive impact for the industry; some of its highlights are as follows:

• New contributions to medium term savings would increase by £1.5billion net
• Pension premiums would increase by £560 million
• Credit Card debt fall from £2.5 billion to £830 million
• Unsecured debt would fall by £2.2 billion

The Thoresen review, having been set the task by HM Treasury of examining the feasibility of delivering a national approach to generic financial advice, will consider how to ensure greater access to high quality, affordable generic financial advice for those most vulnerable to the consequences of poor financial decision-making. The review is currently in the process of gathering evidence from industry stakeholders.

One of the areas in which the review is requesting views, thoughts and information, and one in which I have an increasing interest, is how to actually engage individuals with generic advice. What if, after many hours of discussion and resources ploughed into dispensing generic financial advice, the retail consumer still fails to take up their spoonful of financial medicine, and instead continues to gorge on consumer credit and debt?

In the Government’s forthcoming system of Personal Accounts, consumer inertia is harnessed via the power of auto-enrolment; what equivalent method could push retail financial services consumers to partake in a bit of generic financial advice? What if, despite the valiant work of the Thoresen review, the FSA and others, a solution is delivered that simply isn’t taken up in sufficient numbers; does anyone remember stakeholder products? Apart from advocating credit care, unsecured loan rationing and/or controls, how exactly does one prevent an individual from taking out that extra bit of easy consumer debt?

Currently the UK economy is feasting upon on rising interest rates and inflation, higher monthly mortgage payments and house prices, rising unemployment and creeping consumer uncertainty. Perhaps the current debate on how to develop and expand distribution of generic financial advice boils down to that old-fashioned concept of personal responsibly and interest.

Apart from the house purchase, and for a minority private school fees, the purchase of the family car is often the next largest financial purchase. However, the modern car is one of the most complicated purchases we are ever likely to make; how many of us dread looking under the bonnet? However, go into any newsagents and the top shelves are packed with ‘What Car’ type magazines detailing the latest car gizmos and model, while magazine programmes such as BBC2’s Top Gear entertain the public and make the subject of motoring fun.

Individuals care more about their cars than personal pension plans; this is because they find it interesting! But is it also because the car industry, in conjunction with publishers, retailers and customers, actually uses its marketing budgets to inform and educate their consumer rather than merely bombard them with dry ‘marketing information’.

If the whole retail financial services industry delivered better products and services, which in turn provided improved consumer value, and addressed the issues set out in Sir Callum McCarthy’s 2006 Gleneagles speech, then perhaps the consumer would be more interested in their own financial products and well-being.

The challenge for Otto Thoresen and others is to develop a system of generic financial advice in which the “customer feels like a king”, and power rests within their hands. Look at the UK high street fashion industry: a re-engineered business (i.e. Zara and Top Shop), has created a new industry (fast fashion), and hence renewed customer demand and interest; look at the recent queues to obtain Kate Moss creations at Topshop. The British high street and retail fashion industry has been revitalised. The same could be true of the financial services industry – if it goes about it in the right way.

PS: Otto, if you‘re reading this, and if you do recommend to Government a financial services Top Gear-type programme which will make stars of its presenters – my number is below!

1. The Advice Gain: The impact of generic financial advice on the financial services industry

Terry Paul can be contacted on +44 (0)20 7665 9533 or click here to email.

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