Examination of Witnesses (Questions 100-119)
MR MICK
MCATEER,
MS TERESA
PERCHARD, MR
MIKE BARRY
AND MS
CLAIRE WHYLEY
24 JANUARY 2006
Q100 Mr Mudie: Nor in regulating
this retail market that they should have regard?
Mr McAteer: We do not, for a very
simple reason. Of course, if it became more efficient, perhaps
they could take it on, but I am worried about the practicalities
of allowing the FSA to have that responsibility because I seriously
do not think they could cope with that particular objective.
Q101 Mr Mudie: Are you actually saying,
though, that you see the main regulator for retail services and
you see nothing wrong or no need for improvement, including regard
for the poorest customers who have no access?
Mr McAteer: Hang on a sec.
Q102 Mr Mudie: That is what we are
speaking about.
Mr McAteer: I would argue that
the Treasury should take more responsibility and should be more
interventionist in tackling financial exclusion. Again, I have
to stress this point because when you think about it, regulation
is about two things. It is about making markets work or else ensuring
people have access. You can have those dual objectives with the
same regulator or you can have a separate regulator dealing with
it. The FSA, believe me, is already struggling hard enough to
make markets work. I do not think it could actually cope with
the practicalities of absorbing a financial inclusion objective
unless we went back to the original proposition that people wanted
all those years ago, to have a twin-peaks regulator, a regulator
that looked after wholesale regulation and a regulator that looked
after retail regulation.
Chairman: This is an issue we are going
to come back to. I agree with Mick that if the FSA was responsible
for credit regulations that would increase their client base fourfold
into 100,000. There is a big issue here, but we will come back
to that.
Q103 Lorely Burt: I would like to
move it on a little bit further and talk about access to financial
advice.
Ms Perchard: Yes.
Q104 Lorely Burt: There is a group
of people, and I would be interested in your views of exactly
who this group are—they are not the people who are actually
on benefits, and they are not the people to whom IFAs wish necessarily
to spend lots of time filling in lots and lots of paperwork to
sell their products, but they are people who need good, basic
general advice. Do you see this as an actual group of individuals
who you wish to target?
Mr McAteer: Yes, we do. This is
one of the big public policy challenges that we talk about at
the moment. There is a need for a range of alternative products
where the market can serve, but also there is a need for alternative
sources of advice. When you think that the actual demand and the
need for advice is growing considerably in the UK, for a number
of reasons, we have the one and a half million over-debt households,
in particular pensions, where employers are closing down their
final salary schemes and so on, people are desperate for advice
on pensions. You are saying things like the need for emergency
advice on cons and selling scandals. People who are mis-sold things
like endowments, and so on, do not want to go back to the same
people who sold the product to get more advice on clearing up
that issue. To give an indication again, whenever we did our mortgage
endowment campaign we got over one million visits to our website,
so we think there is evidence of a clear demand and a clear need
for an objective financial advice network to provide especially
that kind of advice. When you have one million people visiting
the website because they trusted us, I think a lot more can be
done to ensure that people have access to that advice.
Q105 Lorely Burt: Indeed, and you
have proposed such a network. Can you go into a little bit more
detail on how you see that network operating?
Mr McAteer: We do not see any
point in recreating providers, because, as I mentioned in previous
statements, there is already a huge infrastructure of providers
out there, like credit unions, like advice centres, and so on,
like specialist charities, who could provide financial advice,
but it goes back to this point that we think that the delivery
of that advice and the funding of that advice is too fragmented
at the moment, where there are a huge number of people doing a
great job providing access to advice—people like the Consumer
Credit Counselling Service that we are working with, and so on—but
we take the view that it would better done if it was branded under
a single entity called National Financial Advice Network in the
same way as the Community Legal Service is branded for delivery
of access to free legal advice, but the important point is it
needs to be properly resourced: because what started out in the
legal services field as a genuine effort to improve access to
financial and/or legal advice, I think has been undermined because
the resources have been taken away from it. Again, it comes back
to the point of better resource, better delivery. The infrastructure
is there to permit access to that advice. People need to trust
the brand if they are to actually use it, but the need and the
demand is clearly there.
Q106 Lorely Burt: Obviously CAB do
a fantastic job in providing debt advice already. I would be interested
to know what your thoughts are about whether the CAB should be
a vehicle for doing that, bearing in mind that you are talking
about branding, and people do see the CAB as, sort of, you only
go to the CAB when you are in trouble. What we really need is
a place that you can go for generic advice?
Ms Perchard: Yes.
Mr McAteer: Absolutely. I must
admit, I forgot the survey that has been done previously, but,
whenever we proposed this idea, we did ask people what did they
think about the idea of a branded national financial advice network.
Surveys being surveys, but certainly the response from the people
we did ask was very positive. They particularly liked the idea
of trust and independence. Being able to go to someone and get
advice from someone who is not trying to sell you a product is
incredibly important. We are slightly concerned with the emphasis
the FSA is placing on this. They seem to be expecting the private
sector to create a market for generic advice, and there may be
some potential there, but again I think it comes back to the point
about further additional resources and better coordination of
resources. This is another area where we can see the market providing
that particular kind of advice.
Q107 Lorely Burt: There has got to
be something in it for them in order to motivate them to want
to work with any organisation to provide advice?
Mr McAteer: I think that is right.
We were very keen to try and get a proper pilot study done on
this, and that takes money, but we also believe that this would
be better for the industry itself for a very simple reason. If
you look at the Pensions Commission Report, when it actually breaks
down how much money the retail sector spends on marketing and
what we call prospecting for new business, because the conversion
rates are so low, there only have to be one or two or three potential
clients but only one of those clients may end up buying a product,
so there are actually a lot of sunken costs that the industry
uses prospecting for business from people who are never ever going
to buy a financial product; so we think this network would have
consequential benefits for the private sector as well, it would
make the whole system more effective.
Q108 Lorely Burt: I want to go on
to ask the CAB. I know you have done some research and a pilot
already, but I also want to ask all of you, if it is not going
to be an IFA, who actually, physically, what group of individuals
do you see in society that we could call upon to deliver this,
like an advice doctor, like a GP's surgery?
Ms Perchard: Financial advice.
There is a market to be served. Arguably the distribution systems
of large scale mainstream product providers is not currently working
terribly well anyway, because so many people do not know how to
use advisers, and I think we need to think about who we are talking
about here in this inquiry—about the financially excluded—and
possibly, let us say, that is about people who are on the lowest
incomes who have the least sophisticated requirements and experience
in terms of choosing and using financial services. For a long
time people have been looking at the CAB service and wondering
whether we could be the solution to generic financial advice,
especially for people on the lowest incomes. We might be quite
a good bet. We have got over 3,000 locations we work from, over
90% of the population know our brand, we deal with one and a half
million benefit enquiries a year—they are all about money
and filling in forms and advising people face to face—and
then there are 1.2 million debt enquiries and lot of budgeting
and income maximising advice, exactly the sort of advice that
people who are financially excluded need. But we are after-the-event—we
are the emergency room—and we are interested in how we move
into more preventative work. That is why 70 bureaux are delivering
financial education in their communities finding the resources
to do it. But we are not going to just take it on without the
resources to do a competent job. We did some very good research
with the FSA about this with our advisers and our clients—our
money advisers. We have got loads of expertise—we have got
16,000 trained volunteers who know how to give advice on debt.
They would be keen to do more preventative work. They hate the
fact that they are seeing people after it has all gone wrong when
it is harder to resolve, but they do not want to take it on without
the training, the backup specialist support, and in some cases
we would need paid advisers to give the competent face-to-face
advice we need. The FSA research on Widening the Scope
was very important. But we have also undertaken a pilot project
recently with some IFAs working pro bono in CAB to see
if it might be possible for us to create a larger scale pro
bono partnership with the IFA sector which would complement
the work that we do in CAB. We have found that we can do it. We
have done a very small-scale pilot, and we would like to move
on to something large-scale, longer-term where we can test the
churn rate on the IFAs, whether we can really keep them and what
the long-term administrative challenges are of running that kind
of service. So we are keen to show willing here, but at the end
of the day, I am sorry to say it, but we do not charge for our
services and if we were going to be a delivery channel we would
need the investment to bring this in. A lot of our money advice
services which deal with debt after the event are on very short-term
funding. Mike's funding for his post in Blackpool runs out in
a couple of months' time. He is funded from the local housing
allowance project. What happens next? Maybe something will turn
up. It is the same all over the place in our services.
Q109 Lorely Burt: I am sure you are
right, and I am sure that Citizens Advice do a lot of the Government's
work for them absolutely on a shoestring, but I am a bit concerned,
I think, about you using your advisers, your debt advisers. Will
these people have the expertise to be able to give the quality
of advice on different types of generic products, or—you
are looking at clarifying pro bono—would you want
to be upscaling the training of the individual rather than a volunteer
who has got a basic debt adviser? Is there a skills gap there,
and, if you wanted to go ahead, would you address that skills
gap?
Ms Perchard: We think our training
is extremely extensive. It takes about six months before you are
let loose with a client on your own in the CAB, which is very
frustrating for some volunteers because they want to get going.
Our advisers represent people in court, at tribunals, they deal
with more than one advice area, as generalists. They have got
to spot if you have got a tribunal deadline coming up on an ET
claim and they are liable if they do not. This is professional
advice delivered by a mixture of volunteers and paid staff. If
you are advising people about court process and what they can
and cannot do with a particular financial product, what the implications
are for dealing with debt, it is not a world away from helping
people with translation, working out a budget and shopping around
for credit and simple financial products not linked to sales,
and that is what we are talking about. It is generic advice.
Mr McAteer: Yes, I think it is
important to recognise, certainly what we are talking about when
we are talking about general financial planning, it is financial
health checks and so on, but I think if it became clear that someone
could afford to buy a retail financial product, we would expect
them to be referred on to a qualified AIFA in their local area,
and so on. This is not about providing access to free advice for
people who can afford to pay, this is for people who cannot afford
to have access to financial advice. One of the reasons we thought
this was necessary as well was because it is those who are vulnerable
who face the most complex financial issues. That is the paradox
of financial services.
Ms Perchard: It has the biggest
impact.
Mr McAteer: Absolutely, and I
really do echo Teresa's point here. It is the advisers who work
in CAB, who work in advice agencies, and so on, who are the most
skilled, the most dedicated and probably the best qualified as
well in terms of the range of subjects that they can cover.
Ms Perchard: One of the things
that we learnt from the project we have undertaken and reported
on recently with the IFAs is that the Personal Finance Society
were very strict in that we must have the best qualified IFAs,
the highest standard IFAs, but they were saying, "Crikey,
we did not know about all this stuff on tax credits. We have learnt
something from working with you. Nobody trained us about this
side of people's personal finances." So the assumption that
perhaps we are dealing with the basic stuff and they are dealing
with the complicated stuff maybe actually is not the case.
Q110 Lorely Burt: I bow to your greater
expertise! Going back to my first question, the group that you
are addressing, who are they? Are they people who are in some
sort of danger of crisis or are they lower to average type income
people?
Mr McAteer: We may have a slightly
wider emphasis when we talk about access to financial advice,
because I think you know there is a group of people who do need
emergency type advice, particularly with debt problems and so
on, but we stress the point again, we cannot see how the retail
market can provide access to the type of advice that we are talking
about for the mass market; so we would extend this demand, this
need, further up the income scale to include much of the mass
market as well, because we have looked at the economics and we
simply cannot see how the insurance industry can provide products
and advice to the mass market, and so we would argue this should
go higher than the more obvious excluded groups.
Q111 Lorely Burt: Who is the mass
market?
Mr McAteer: Generally speaking,
we would say that the retail industry struggles to distribute
products to people who earn say £17,000 or £18,000 a
year, and that actually tends to be the medium wage in this country
after tax. The extent of exclusion, what we emphasise in our introduction,
is probably bigger than the more obvious manifestations of exclusion.
Ms Perchard: In the project we
have run with IFAs, the majority of clients we have referred on
to an IFA were low-income home-owners (over 80% were), the majority
were older and reliant on pension income alone but were needing
to make decisions about their assets and did not know how to go
about it or they were low-income and reliant on a mixture of benefits
and low-wage incomes. The biggest area of the enquiry was endowment
shortfall, and pension advice came second, and in both areas helping
people to understand the letters they had was the biggest area
of work.
Q112 Chairman: Before moving on to
Peter, clients that you get coming in, in many cases, need somebody
to negotiate with their creditors because they are confused and
unable to do that. Do you take them through that? Do you negotiate,
firstly, with their creditors what has got to be paid back?
Mr Barry: Yes, that is a big part
of the role of any debt adviser. The clients that we see come
in usually in debt crisis, drowning in debt, not knowing where
to go and not knowing what options are open; so what we do is
we go through their financial circumstances with them. We look
at income, we look at expenditure and we look at the options open
to them. That might include negotiations with creditors on reduced
repayments, equally it might include individual voluntary arrangements,
it might include bankruptcy, and we would advise them on the options
open in their circumstances and then help them take that option
through to conclusion, and that does include, in many cases, attempting
negotiations with banks, building societies and other lenders,
yes.
Q113 Sally Keeble: When I was doing
my mystery shopping for a basic bank account for this elderly
relative, I looked at the issue of financial advice, and some
were very good—Abbey and Nationwide were actually good—but
what struck me very much was that for the financially excluded
most of them were excluded because they were old or disabled or
single parents, there were structural reasons for it. Most of
the places I was going to had no seating, no carpeting, hard flooring,
so it was uncomfortable to stand, no proper queuing, no space
for buggies, difficult access because of restricted doors and
really hard to use. It did strike me that if you are going to
talk about advice, even before you get to IFAs and qualifications,
it is the basic issues about providing advice to people who are
financially excluded. I could not for the life of me understand
why people were being directed to banks when what you are asking
about is forms, and "Can you take it home and fill it in
there and bring it back, "Where do you send it to?",
et cetera, et cetera, and why it is not a mainstream
function for advice agencies and, frankly, why the advice agencies
have not done it?
Ms Perchard: Have not done?
Q114 Sally Keeble: Have not done
the real packaging of advice for that client group?
Ms Perchard: The prospective pre-shopping
advice rather than after the event emergency crisis advice.
Q115 Sally Keeble: Not crisis, routine
advice on getting access to financial services?
Ms Perchard: We would love to,
but there is no funding for our services to deliver that kind
of service. The pattern of funding for a CAB locally, and any
other similar agency, is a patchwork of different funders—what
the council wants, what the Legal Services Commission wants.
Q116 Sally Keeble: But you have got
the premises?
Ms Perchard: We do, absolutely,
but if we are not delivering the advice, who is? Even if we are
delivering through volunteers, we need to be able to train them
and support them so that, if they are getting into something that
is too complicated, they have specialist support. We audit and
we insure all the advice for the whole service. We would love
to be doing the sort of advice you are talking about. The major
issue in High Street bank branches is about privacy, which is
extremely off-putting—the shift to machines—and if
you can wait you do, and even the customer services bit is not
private. If you are being turned down it is really humiliating.
Q117 Chairman: Is there a case for
the Financial Inclusion Fund to look at that for you?
Ms Perchard: Yes.
Q118 Chairman: It is an open door,
is it?
Mr McAteer: Yes, I think that
is precisely the kind of example where we could do a proper pilot
study.
Q119 Chairman: Some people have expressed
concern to me that the DTI are a little bit concerned about the
money.
Ms Perchard: It is too late now,
but the next spending review is the key thing. What is going to
happen to the spending? What can it be used for?
Chairman: Hopefully the report will come
up with recommendations.
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