The financial services industry is spending too much on redress and not enough on prevention and equipping individuals to become financially empowered, the chairman of the Money and Pensions Service, has warned.
Speaking at the Pensions Aspects Live conference in London today (April 3) Sir Hector Sants, chairman of the new guidance body and former head of the regulator, said the financial services industry must switch the focus of its expenditure and increase its emphasis on financial capability.
He said: "On a strategic level, there needs to be a shift in the balance of engagement from remediation to prevention.
"The industry as a whole spends millions, if not billions, on a mix of regulatory fees, internal controls and compliance, let alone the further billions spent on redress.
"Yet the expenditure on prevention, equipping individuals to be empowered, is at best a few hundred million. I would suggest that’s not the most effective use of our collective resources."
Sir Hector said a change in the industry’s expenditure would give better outcomes to consumers and also reduce the risks for financial services providers.
He added: "I appreciate that most of this expenditure is incurred by providers of personal financial services, notably banks rather than the pensions industry, but I think the overall point remains valid."
Sir Hector also asked that the industry work together to "restore trust", warning it was not enough for a company to claim they were "putting the customer first".
He said: "The industry needs to put the individual, as a person, and their wellbeing at the centre of corporate purpose.
"This requires industry to see the world through the eyes of that specific person, with their own individual vulnerabilities and anxieties. It is important to recognise we are all potentially vulnerable at some point in our lives."
Sir Hector also said the Single Financial Guidance Body, which will become the Money and Pensions Service as of next week, "very much" wants to work in partnership with the advisory community.
He said: "I’m aware in the past that maybe hasn’t always been as effective a partnership as it could have been, if I could put it that way.
"We want to work together with the advisory community and the way I would see that working in high level terms is…to equip the individual to be more confident and more knowledgable and empowered when they come to then have the conversation with the adviser.
"So the quality of that dialogue is better, to the benefit of both the adviser and of course ultimately to the outcomes of the consumer."
Sir Hector said the guidance body sees itself as part of a "seamless process" which includes consumers and advisers, but "a lot more thought" must be given to how the process is organised and how the handover between parties occurs.
Ultimately, Sir Hector said, the goal is to equip the individual to have a "high quality dialogue" with an adviser.