Examination of Witnesses (Questions 440-458)
MR CLIVE
COWDERY AND
MR PATRICK
SOUTH
14 MARCH 2006
Q440 Mr Love: If I put those last
two answers together, do you see the role of the government as
being to get the all round the table and say, "Stop spending
in these silly ways. We will tell you how to direct it to create
the framework but the government will not put any money into it"?
Mr Cowdery: I certainly would
not want the ways in which industry are spending money in the
provision of financial advice today to be thought of as silly.
I think they are very valuable but they are in small isolated
pockets. I believe there is a case to be made for 100% of such
a service to be funded solely by government. I believe—and
this is what gives me hope of an agreement—that there is
a case to be made for such a service being provided and funded
100% by industry. When one looks at commercial agreements that
are made in the commercial world, I note that those are very good
starting points from which to come to an agreement.
Q441 Mr Love: Let me ask you finally,
against a backdrop of the very significant sums of money that
are being earned by commercial companies who are operating in
the marketplace, would it be unreasonable for the public to think,
even taking £200 million—and you suggest a figure considerably
less than £200 million—across the whole of the industry,
that that was a levy beyond their capability to fund?
Mr Cowdery: I think that the boards
of banks and insurance companies undoubtedly take a holistic view
of every single request they receive from either the voluntary
sector or from government to put more money into sources other
than paying it to their shareholders and they look at things like
basic bank accounts and they look at other initiatives in which
they have been asked to join and I am certain that the arrival
of this initiative, whilst immediately seen for its social value,
would be placed in the context of other things they have already
had to put their hand in their pocket for. So, I cannot really
answer today as to what their reaction would be to funding yet
another provision of financial help and advice. I am also certain
however that the more farsighted and intelligent thinkers about
the financial services industry who are on boards and who are
chairmen and chief executives are already seeing that they have
both short-term objectives which are over profit maximisation
but long-term objectives which are over development of a stable
market, and you cannot have a situation where 8.7 million people
are locked out of that market or are using it badly, and consider
that to be a stable market. So, a response from banks and insurance
companies should not only be expected but should be seen as something
that they might in fact join in with much more proactively than
one might imagine.
Q442 Chairman: Do you think that
this will help restore trust in the financial services industry?
Mr Cowdery: Yes.
Q443 Chairman: In what way?
Mr Cowdery: I think that many
people form their views of the financial services industry through
a series of bad examples and incidents and it is those that obviously
get the highest playtime in terms of press and general market
knowledge. I think that, over time, a service like this, that
can help consumers confidently use the system that exists in financial
services for their benefit, feeling that they are gaining from
it and not just being providers of profit to it, will, over time,
give people a different and more healthy respect for the industry.
It is not like the industry is only the sum total of all its misselling
scandals. Every day, every week, every month it puts hundreds
of millions of pounds in the hands of people who have used the
system properly, whether they be grieving widows who receive life
insurance cheques or people who finally reach the end of their
working lives and receive the benefits of having saved properly
and prudently during their working lives. So, it would allow a
group in society to see some of the more positive sides of what
the financial service industry does for people in Britain.
Q444 Lorely Burt: It is a great pleasure
to see you here today and things have obviously moved on a great
deal since when we spoke before Christmas. My job is to talk about
delivery mechanisms. However, before I do that, I would like to
ask you about the funding and using the traditional banks and
insurance companies. Relatively new movers in the market in direct
sales are organisations which have traditionally not been involved
in that area like, for example, big supermarkets. If you go down
to my local Tesco, where the sweeties and all the goodies were
that the kids used to grab for on the way to the checkouts are
now financial direct sales products. That gives me quite a bit
of anxiety because people are not getting advice with these direct
sales as to whether that is the most appropriate product for them.
What do you think the reaction of organisations like big supermarkets
and these direct sales companies will be? They might also perceive
it as muscling in on the market in a way. They have a very simple
product that they just want to thrust in front of the customer
but then, all of a sudden, the customer is going to be drawn away
to actually get some free advice and have something that might
be more appropriate.
Mr Cowdery: We should, I think,
pause briefly to think that not only are you distressed by the
lack of sweets available at the supermarket checkout but many
children in Britain also are unhappy too!
Q445 Chairman: Blame David Cameron!
Mr Cowdery: May I make two points
in response to that question. The first is that the products made
available by supermarkets have been at the better end of products
available in the UK for value, largely because they are aware
of the need to keep those products simple and not to unnecessarily
complicate. If one were to take a scale of complexity of products
in the UK . . . Complexity equals evil. There is no question.
Complexity equals unnecessary cost and an inability to get the
cost of operations in the financial service industry low. So,
simple is good. Most complexity has been added in order to give
life insurance companies, banks and others something new to talk
about to their sales distribution networks, not necessarily to
deliver much consumer value. So, simple is good. Shops have sold
simple products. That is therefore good and we would obviously
like to see that continue. We do not believe that a national advice
network would take people away from then going in and buying in
Tesco. As I was describing earlier to Mr Newmark's question about
where one might end at the end of a conversation, the expectation
is that this service, in order to sit the right side of non-regulated
advice, will not recommend where you buy your product but it will
tell you that products of the type you are seeking are made available
in the following areas including, to address the Chairman's point,
on the internet, i.e. direct without any kind of commission whatsoever
being put, and that will include therefore telling them that products
of that type are available at their local supermarkets and directing
traffic back. We will not seek to select where they then go for
their final execution.
Q446 Lorely Burt: I might just dispute
that with you because I do not believe that simple is necessarily
good at all. What gives me anxiety about these sorts of products
is that you know you need some protection but you need advice
really on what sort of protection. You might go out and buy life
insurance which may be a wonderful thing, but in actual fact what
you need is payment protection insurance as well. That is why
I have that anxiety.
Mr Cowdery: Just to comment on
what this advice service would tell you about what you should
ask for, it will be driven by prompting through questions. So,
as to your point on payment protection for example, one can imagine—and
here of course we should not go and design script number seven
for the call centre—that the service might ask a question
about whether you are in employment and, if in employment, whether
or not you are comfortable that you could maintain all your existing
commitments in the event that you had a period of unemployment
and that might prompt somebody to ask those sorts of questions.
My more general point on complexity is to say that study after
study has shown that doing something is more important than doing
the perfect thing and the one good thing that shops and others
have done by making products available that are simple and easy
to buy is increase the number of people who might do something.
It is better to have basic life insurance than no life insurance,
for example.
Q447 Mr Newmark: I think there is
a difference because the motive behind selling a piece of life
insurance from a life insurance salesman is actually to make you
pay as much as possible because then he or she gets a fee. I think
the motive behind what you are proposing is what I would call
generally best advice because there is no hidden financial motive
behind what you are proposing.
Mr Cowdery: The system earns nothing.
Q448 Mr Newmark: Therefore, that
is why I would agree that keeping it simple is better because
there is no hidden agenda there.
Mr Cowdery: The second point that
I was going to make in response to your first question, Lorely,
was this question of whether the shops would see us in competition.
We have asked during our focus groups where people would like
to get this advice and, as I have said, 70% of people are quite
comfortable to have it on the telephone but we did ask them to
assume that it was available face to face and then asked the question
again. Quite interestingly, only 22% of people would be happy
to have that conversation at work—perhaps an interesting
point when you think that worksite marketing is one of the areas
to reach into this—45/50% would be happy to have it in a
Citizens Advice Bureau or at a community centre but 34%, quite
a high number—one in three—would be happy to have
that conversation at a local shopping centre. So, one should not
rule out from where financial advice is made available face to
face but shops and other centres might, over time, have a kiosk
and a booth and a number you pull and a chance to have a quick
five or 10 minute chat with someone now, and of course that is
right in the environment where the place you can go and fulfil
your newly discovered requirement is in the shop itself.
Q449 Lorely Burt: I had better get
on to what I am supposed to be talking about which you are leading
on to very nicely and that is exactly where you get this advice.
I love the idea of the NHS Direct model but there are such a large
number of different types of financial organisations, charities,
advice centres and indeed the CAB and we did speak to the CAB
and they were very, very interested in the idea of adding the
financial advice aspect to their portfolio of advice although
of course there would be a cost attached. Do you have a model
as such? I mean, a call centre is a call centre but in particular
the face-to-face aspect of it, so that it would be a nationally
recognised . . . Mick McAteer in Which? has suggested that
it could be called the National Finance Advice Network. What is
your vision for how that could actually roll out?
Mr Cowdery: Our business plan
has now moved from the last six months of lots of quantitative
work right through the qualitative work that includes what kinds
of brands etc people might see as attractive and likely to inspire
some action. We are the wrong side of the next eight weeks of
work to bring you any specifics on that. One thing I can tell
you from the work done to date is that the brand necessary to
inspire trust for that quick 15 to 20 minute chat does not exist
in Britain today. It is not branded under a new branch of something
existing . . . It is not part of the Ombudsman Service—people
think about that as the place you go for redress. It is not the
Citizens Advice Bureau—we have tested that one; that is
where you go if you are in trouble. One defining characteristic
about these 8.7 million people is that they refuse to think of
themselves as in trouble. They are all earning; they are all in
employment. I am including there the 40% of them who are actually
in an acute or chronic financial situation; they are still not
in trouble in their minds. We need a new brand here and it has
to be a brand that is recognised in some way. It is some financial
version of NHS Direct in some way. NHS Direct helps you with your
physical health; System X, or whatever this thing is—I am
by no means a brand person but we are bringing brand people in—needs
to launch a service that is seen as the equivalent for your financial
health.
Q450 Lorely Burt: I just wondered
what your take was on the pilot done with independent financial
advisers and the Citizens Advice Bureau.
Mr Cowdery: It was very, very
interesting work. It was done by the use of IFAs giving time on
a pro bono basis for very full advice—so, back to
the questions that Mr Gauke and Mr Newmark asked earlier—which
was fully regulated and it was very fully comprehensive: it was
an hour or two per session. In that, there was a high expectation
that it would lead to a new decision being taken or that something
good would come out of it and, quite interestingly, the same number
of around 70% of people saying they would use that service if
it were available more widely was an interesting number to validate
against the research we are doing here. The question of whether
it is cost effective to be able to offer a full one hour when,
as we have discovered through our research, 80% of people want
a 15 to 20 minute chat and, if you can do that on the telephone,
we could dramatically lower the cost of making a national proportionate
response to the advice gap.
Lorely Burt: We look forward to seeing
what you come up with as a result of your further studies. That
was very interesting. Thank you very much.
Q451 Mr Love: May I look at the other
side of the equation in the sense of the questions asked earlier
where you were suggesting that, if people ring up and they have
particularly debt problems, you will refer them on. A lot of the
debt services in this country are not very comprehensive; anybody
who works for the CAB knows the difficulties they have; they are
usually part time; they do not cover; and a number of people miss
out. A lot of them are going to come to this national service
that is advertised, and they will pick up a phone but you will
want to refer them on.
Mr Cowdery: Yes.
Q452 Mr Love: But there is a service
there.
Mr Cowdery: No.
Q453 Mr Love: Have you thought about
whether there is a knock-on effect from your service to, if I
can put it like this, the debt service and how do we improve that
part? In a sense, I am asking you, once you have finished this
piece of work, will you be moving on to how we can have a national
debt service?
Mr Cowdery: It is possible that
I will then revert to my day job! Your question has no answer
from me, Mr Love. In fact, it is one of the biggest difficulties
in our thoughts at the moment. As you talk to the people who are
providing some very high quality advice on debt, rescheduling
and cancelling, you are struck by two things. One is that the
sheer professionalism with which those people are engaging in
their jobs is to be applauded. The second is that they have no
hope with their current level of resources of withstanding a trillion
pounds of consumer debt and, as that consumer debt begins to move,
as it inexorably is moving towards, "very difficult to collect"—and
we talked about some of the gearing levels in the course of this
morning's conversation—we are going to see a wall of inquiries
falling on those people, whether or not we also set up to deal
with an entirely different community a Money GP service that generates
yet more phone calls which get referred to an ever stretched group.
So, I am afraid to say that I can only agree with your diagnosis
of the problem that we will undoubtedly exacerbate by referring
people and driving traffic on to an already stretched service.
The Government recently announced a £45 million increase
in funding. I think that would have been very welcome and indeed
I note from the transcripts of people who have presented evidence
to you in the last week or two that that has already begun to
be claimed and spent by the different national debt services.
That is a very welcome thing but I am certain that more will be
needed. It is outside of my remit but I note your point that we
will be making it worse.
Q454 Mr Newmark: I just want to say
that everything you have said is very good and you have articulated
things very well. I think the motive behind it is excellent and
you have identified 8.7 million people who are effectively being
excluded and a responsible society should be dealing with all
that. However, I am still not clear as to what you see as the
catalyst to change people's behaviour. You have come up with mechanisms
to try and help people in a variety of ways and you are thinking
of further ways. However, I am still not clear as to how you are
going to pull in the people who are in most need of that help
as, in the end, they become very self-selecting. I am assuming
that the more middle class or the slightly wealthier they are,
the more likely they are to proactively come in and see you and
those who are less likely will not. Again, it is that bottom part
of society who are in most need of this help but what mechanisms
are you thinking about to pull them in?
Mr Cowdery: We believe that national
awareness campaigns will be needed in order to make people aware
that there is a new—and here you will understand particularly
my reason for saying "free"—service available
to people. That is the first step. Secondly, we think it is only
sensible to build the operation to capture event-driven flow and
not outreach or missionary work, if I can call it that, into the
most needy. I am sorry if this sounds a little hard headed, but
you can either build an extraordinarily expensive infrastructure
and struggle to get it up and running because you cannot get the
funding agreements, which would go out and proactively stimulate
people to take better decisions over their financial affairs,
or you can simply build it for a number of people to whom an event
has occurred today/this week for which they would like advice
now. There are a large number of events: there are redundancies;
there is the rent versus buy decision of, how do I get on the
local authority housing list in order to make certain that, in
the next five years, I can buy a property; there is the question
over whether or not they should or should not take up the offer
they just saw on the television to reschedule their debts into
one "easy" loan from a debt consolidator; there is also
the question when they are coming up to retirement of, should
they or should they not take the offer they have just received
from their single insurance company to buy the single annuity
rate they were offered, or whether or not they could be told in
a brief conversation that there has been the opportunity over
the last 20 years to go and buy that annuity from someone else
that might give them hundreds of pounds more of income in their
retirement for every year of the rest of their life. We believe,
rather hard headedly, that the right proportionate response for
the country is to build something that picks up the flow and does
not go on missionary work.
Q455 Mr Love: In answering that question,
it raised in my mind this boundary—and people have talked
about it earlier on—between giving generic advice and when
it phases over, and I wondered what consideration you are giving
to the many people who will ring up and will get into a conversation
and you will be telling them what they ought to do in generic
terms, but what they will want to know is which annuity to buy
or which pension to enter into. How do you decide, that is the
line that we draw and we will not go any further?
Mr Cowdery: This is where the
internet is helpful. We think that you need to switch people in
to some of the very helpful comparator-type websites which are
available which do the switch for two reasons. One, we have moved
them on, and we can get on to helping someone new, they are ready
to buy and that is good and, two, I have not had to say that X,
Y or Z has got the best rate this month, you can see it.
Q456 Chairman: Back to a question
on the ISAs. The point Brooks has made about people coming in
to use the service, how are you going to monitor who you are getting?
Mr Cowdery: Obviously we are going
to keep statistics and metrics as we go through the first year
or two of the life of this service. I keep saying "we",
I should say "the service". I stress again, it is not
Resolution Foundation that plans to operate this. The service
will need to keep those metrics and that will include picking
up whether we are getting a very large number of such people.
If we are, I do think it will be fair and reasonable two or three
years into the life of the service for those who are operating
the service to review the question of this in regard to back charging
and see whether or not that is appropriate to bring in and, therefore,
you have streamed by income. The critical filter will be the use
of that first three or four minutes of qualifying conversation.
If in the course of that you discover that someone is earning
£40,000 a year and is already in his company pension scheme
with £5,000 he has just inherited from his granny and wants
to know how to invest it, I think that sounds like a good sell
for an IFA or a bank or an insurance company.
Q457 Chairman: Looking at the role
of the FSA, how would you characterise the progress made with
the FSA's working party so far on generic financial advice?
Mr Cowdery: My exposure to that
working party has been relatively recent, I have only been exposed
to it whilst pursing this particular goal since last summer. The
working party on financial capability seeks to come up with various
different stages of involvement in financial advice and education
starting in schools and, of course, going right the way through
people's lifestyles. That is a large and ambitious scope that
the FSA is pursuing. My own involvement has been to see, in particular,
a crossover between what we are seeking to do and the worksite;
that is their area. Unfortunately, as you have seen from the statistics
I shared with Ms Burt, the worksite is not a particularly promising
area. Certainly the question has been raised as I have gone through
the last six to nine months as to whether the FSA is the right
and competent body to have remit in this area. My personal view
is yes, the FSA is the only body available in the constellation
of bodies in the UK that could have responsibility for at least
reviewing what needs to happen in this area. One would question
whether or not the FSA itself would want to be the body that is
responsible for delivering any responses in this area. There may
be better government departments, we mentioned earlier the Department
for Constitutional Affairs and others which are already doing
broadly similar things.
Q458 Chairman: That is a question
I want to come back to you on in terms of what would be the most
appropriate organisation to administer the network.
Mr Cowdery: I believe that a new
organisation with a new brand is needed in order to capture people's
trust. Once it is formed it will need—for supervisory reasons,
and because it would be in receipt of some government monies,
depending on where the funding debate comes out—to sit under
one department or other, and then I believe the usual conversations
can occur within government as to whether it should be an independent
body but reviewed by more than one department—I believe
there are some precedents for that—or whether something
like the Department for Constitutional Affairs or, indeed, the
Treasury would be the right places for it to sit. Given the amount
of involvement the DTI have in the area of consumer debt, that
is another option and given the fact that the Department for Work
and Pensions today has the Informed Choice Agenda which is about
ensuring people understand pensions, and of course pensions are
a bedrock of many of the big decisions that need to be made here,
the DWP is another option. I will seek to bring that forward with
some suggestions but stay as neutral as possible to the outcome.
Chairman: Thank you very much for your
presentation this morning. It has been very helpful to us and
adds another area to our inquiry. No doubt you will be keeping
in contact with us as you are doing for stakeholders but your
presence is very helpful this morning. Thank you very much.
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