Much of the focus around responses to the Treasury and FCA Financial Advice Market Review (FAMR) has been on what can be done to make advice available to the mass market again.
But with much of the population perceiving the cost of advice to be prohibitive, isn’t there a danger that this is missing the point? Surely for low and middle-income households it should be the availability of generic guidance, not advice, which is the first priority.
This requires a clear distinction between what constitutes ‘advice’ and ‘guidance’. Guidance is generic, non-personalised and offers information without making any recommendations, but helps people make an informed choice themselves. Set against this, financial advice offers a comprehensive, personalised service providing expert recommendations on what the client should do to meet their financial goals.
To give a sense of the scale of the problem, research in 2015 by the Money Advice Service (MAS) identified that 40 per cent of adults were not in control of their finances, which was leading to high levels of debt, low levels of saving and financial insecurity in both working life and retirement.
FAMR should therefore focus on how to help people manage their debt and encourage saving. This requires a package of measures to address the low levels of financial capability, improve education on money matters and to get people to take greater personal responsibility for their financial security.
Underpinning this requires the development of a guidance framework that can be offered by financial services, government-backed bodies and the third sector. Such a framework would help people to construct a financial plan of their own and make informed decisions about debt, protection, savings and retirement.
This need for such a guidance framework is the core proposal in the response of the Tax Incentivised Savings Association (Tisa) and The Savings & Investments Policy (Tsip) to the FAMR consultation.
So what might a guidance framework include? We have used Office for National Statistics data as a benchmark to help set out the strategic scope of the guidance framework so that it supports those most in need of help. From this we estimate that debt/financial management could benefit at least 20 per cent of UK households, providing guidance for non-pension savings of up to £50,000 could help 60 per cent of households, while guidance on pension pots of up to £100,000 could help 40 per cent of households.
We also know people like to consider their own circumstances against benchmarks, so we advocate allowing ‘rule of thumb’ scenarios to be developed that align broadly with their own situation.
The scope should be limited to non-complex, regulated products that include protection, cash and collectives (including bonds and equities alongside tax-efficient vehicles such as Isas and pensions). Default options for short, medium and long-term savings objectives should be included. This would help encourage people to use a range of asset types including cash, UK bonds and equities. By aligning the scope with guidance journeys that address needs – for example, debt, rainy-day savings, retirement savings – people will be shown a route to a financial goal.
As well as providing a framework to support households in making financial decisions, we think that every household should have a lifetime financial plan that sets out their short, medium and long-term financial goals and how they are going to achieve these. While every household would benefit from this approach, it would be potentially transformative for low and middle-income households.
Although it is assumed that guidance for the mass market will primarily be offered online, there will be occasions when people want human support, particularly for more complex decisions. We propose allowing expert human support to accompany people through the guidance framework, helping them to understand key concepts and available options, while remaining within the guidance rules.
Capturing all of one’s financial details can be a very time-consuming affair and potentially puts people off managing their money. Worse still, people have to repeat this process each time they go to a new service provider. We would therefore also like to see a standardised fact find adopted by the industry, in effect creating a portable fact find that could be used anywhere, including within the proposed guidance framework. This portable fact find would form the basis of the household’s financial plan and should be regularly reviewed to reflect changes in circumstances or financial goals.
David Dalton-Brown is director general of Tisa
