Select Committee on Treasury Minutes of Evidence


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.





 
previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 16 November 2006