Cicero Policy Briefer

Issue 12, May 2007

Generic Advice – Who Will Pay?

By Laura Chisholm

Like any other Government driven service, there are two questions looming over the provision of generic financial advice: how much will it cost and who is going to pay?

Estimates of the cost of such a service depend on the delivery mechanism. A web and phone based service would clearly be an attractive way of keeping costs down.

The Government is looking for funding models that ‘reflect the benefits to all stakeholders of increasing financial capability in the long-term’ 1. As well as improved financial capability clearly bringing commercial benefits to providers of financial products, an industry-backed system could help build consumer trust.

The industry is well aware of its responsibilities in this area and has a history of supporting the Government in tackling financial inclusion (the founding of the Universal Bank being a prime example).

The Treasury Select Committee has more than once drawn attention to the disparity between the marketing budget of the industry (£170 million was spent on advertising by the financial services industry in the second quarter of 2006 2) and the amount spent on consumer friendly campaigns.

Current expenditure by the private sector on financial capability is by no means insignificant. However, it is piecemeal and usually taken out of often overstretched corporate social responsibility budgets. It would serve those in the industry well to find a way to collaborate over this initiative while still maintaining distinctive offerings in the financial inclusion and capability arenas.

Otto Thoresen’s group is drawing up a plan of how generic advice can be delivered. One of the key questions in his consultation paper, to which responses were due by 27 April 2007, is whether generic financial advice should be “free at the point of delivery”.

Given that this kind of advice is aimed at consumers on low and median incomes, charging is simply not viable if the Government wants anyone to actually take it up. The logical step from this starting point is that the free service must be as simple as possible and direct consumers, if appropriate, to other services that may well charge for more personalised and perhaps regulated advice.

1. Financial Capability: the Government's Long-Term Approach, HMT, January 2007
2. WARC, Quarterly Survey of Advertising Expenditure 2006, quarter 2 2006.

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