Cicero Policy Briefer

Issue 22, March 2008

Analysing the Thoresen Review

By Laura Chisholm

The launch of Otto Thoresen’s report on 3 March means the Government now has a blueprint for the provision of a generic financial advice service. It will not be called generic financial advice but ‘Money Guidance’; which at least means the new army of advisers won’t have to employ their ‘jargon busting skills’ to explain their occupation.

The boundary between this service and regulated advice is clear. Money Guidance will not recommend specific products or specific providers. Rather, it will refer individuals to external services, whether in the industry, third sector or the Government. It will be delivered, at least initially, by the FSA and the cost will be split equally between the financial services industry and the Government. Delivering the service at 2008 prices would cost £49 million.

The service will be designed to be preventative, so it will not be treading on the toes of debt counsellors. Its users will receive guidance on budgeting, saving, borrowing and retirement—in short, how financial services products can be used to best effect.

It will not surprise those who are familiar to the processes of government that the next stage is a ‘pathfinder’ to test the hypothesis set out in the Thoresen Review. The report recommends that this lasts around two years and it is expected to cost £12 million. To provide robust conclusions, it needs to be geared to reach between 500,000 and 750,000 people. Yvette Cooper MP has committed the Government to taking this forward and will join forces with the FSA to provide the money. There are no details about the levy arrangements to cover this initial cost, although as it will lay the ground for the service itself (e.g., around branding and advice protocols), the industry might as well get used to paying.

There are many assumptions made in the Review, albeit assumptions backed up by modelling from Deloitte. These include the delivery channel that users will favour, the amount of users, and the benefits (financial and otherwise) to users, the industry and society as a whole. This is why there is a need for a ‘pathfinder’—to make sure that these assumptions are correct.

The report covers only lightly the interaction between personal accounts and the provision of the Money Guidance service—despite the new pensions scheme being mentioned in the Review’s terms of reference. It is surprising that more consideration was not given to this issue, given that the two schemes could be coming online around the same time (this may be uncharitable to Money Guidance, though presumably any awareness campaign for Personal Accounts will be starting ahead of 2012).

The Thoresen Review states that that special treatment of personal accounts would undermine the service’s impartiality. Maybe; although given that it’s hard to imagine what would prompt users to use a Money Guidance service if not the realisation that they are about to be auto-enrolled into a government-introduced pension scheme, this may need further examination. The Government has undertaken to publish its financial capability action plan and how it plans to run the pathfinder ‘later in the spring’—perhaps this document will look at issues around retirement more closely.

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