HC 271 Money Advice Service

Written evidence submitted by the Money Advice Service

Executive Summary

1. The Money Advice Service’s purpose is to make it the norm for people to manage their money well. We aim to achieve this by offering free, unbiased, generic money advice online, on the telephone and face-to-face.

2. The provision of generic advice to enhance financial capability objectives commanded an all-party consensus when the Consumer Financial Education Body (CFEB), now the Money Advice Service (MAS), was established by the 2010 Financial Services Act.

3. The Government has recently confirmed its belief that the Service is vital to the ambition of providing free and impartial advice [1] and has endorsed the breadth of consumers it serves [2] . We welcome the Committee’s reaffirmation of its support for generic advice in its recent statement [3]  and we also welcome this Inquiry, which we believe will help strengthen understanding of our role.

4. We are laying firm foundations whilst introducing transformed services from summer 2012 that will enable us to meet the money needs of over 11m people annually by 2016-17.

5. To do this, significant marketing activity will be carried out, driving awareness and use of the Service and its products and thereby enabling more people to become more informed and engaged users of financial services.

6. We fill advice gaps and complement others’ activities and already work with and link to over 300 partner organisations. In co-ordinating debt advice, we are working with debt advisors to increase the reach of their face-to-face services in England and Wales by 50% and improve value for money.

7. The FSA approve our business plans and board appointments [4] . We also consult HM Treasury and Department for Business, Innovation and Skills (BIS) on our business plans. We supplement this statutory accountability by consulting our industry, consumer and debt forums.

8. We are funded by levies on regulated firms. The benefit to industry from improved financial capability could amount to £3.9bn over time.

To what extent is the Money Advice Service (MAS) meeting its core statutory objectives:

1. to enhance the understanding and knowledge of members of the public of financial matters (including the UK financial system), and

2. to enhance the ability of members of the public to manage their own financial affairs?

Are the statutory objectives the right ones for the Service?

9. Evidence continues to support the need, complementary to existing commercial and voluntary provision, for advice to enhance the public’s ability to manage personal financial affairs. Our statutory objectives empower us adequately to address that need.

10. There is a significant ‘advice gap’. Some 23m people do not know where to go for impartial advice on credit and borrowing [5] , only 15% has a financial adviser [6] and one in five people have someone they trust to confide about money [7] .

11. The approach to creating a more financially capable nation was outlined in HM Treasury’s Financial Capability: the Government’s Long-Term Approach which, in 2007, stated that:

"The Government believes that there is a gap in the market for affordable

"generic" – i.e. personalised but unregulated – financial advice...

A more preventative approach is needed, and the Government considers that a

national approach to the provision of generic advice is required".

12. Research (including Thoresen Review of generic financial advice, HM Treasury, 2008; The Money Guidance Pathfinder: key findings and lessons from pilot scheme, CFEB, 2010) has supported an action-oriented approach to filling this advice gap, where the provision of free and impartial advice leading to behaviour change, as opposed to the delivery of information, is identified as a key requirement. The Pathfinder research found that the multi-channel advice service piloted in 2009 helped meet money needs which were not fully met by existing providers.

13. To fill the generic advice gap, measures to establish an independent body were included in the 2010 Financial Services Bill and passed into statute with cross-party agreement. In April 2011, we launched as a UK-wide service offering advice online, via telephone and through a network of money advisers.

14. Throughout our first year of operation (2010-11), as CFEB, we simultaneously concluded the FSA’s Delivering Change strategy and built a new national service offering money advice face-to-face, by telephone and online – launched on 1 April 2011 as the Money Advice Service. Our online money health check was developed during the year, and was our first service to use behavioural insights to encourage people to take action. We also launched a programme to transform our service to give advice, rather than simply information, to people who need help with their money.

15. Our transformed Service will help the millions of people with money needs improve their understanding of financial matters and manage their own financial affairs. Whilst our research suggests that up to 19m people could benefit from generic money advice annually, we are configuring a transformed Service to reach more than 11m people each year by 2016-17, recognising that other information and advice will continue to be available.

16. In 2011-12, our first year as a national multi-channelled service, we provided over 74,000 face-to-face sessions, took 84,000 phone calls and had over 1 million online visitors. An average of 26% of users said they took action based on this. Over 500,000 people visited the online health check with 58% taking away a personal Action Plan and nearly 100,000 taking one or more immediate actions.

17. In July 2012 we will begin introducing the transformed Service, including:

· new budgeting and planning tools

· hundreds of action-orientated articles

· more comprehensive comparison tables

· greater personalisation of online content

· improved integration and consistency of advice through all our channels and

· much greater capability to measure our activity.

18. Our transformed Service aims to deliver 1m action plans by the end of March 2013 and increase its reach from 1.9m people in 2012-13 to over 11m each year by 2016-17. We are also targeting 75% of users stating they will revisit our service and at least half confirming MAS helped them take action.

19. We continue to refine our approach in response to new evidence – for example in behavioural science [8] - to ensure that we are meeting our statutory objectives. Hence our increasing focus on life events (such as starting a family, redundancy, bereavement) and attitudes to money as key indicators of the propensity to be impacted by money advice.

20. In summer 2011 we took on responsibility for the co-ordination of debt advice from 1 April 2012. An amendment included within the Financial Services Bill (2012) clarifies our consumer financial education function by including express provision for the coordination and provision of debt advice.

21. This additional role complements the Service’s existing activity and enables us to bring coherence to a fragmented sector, increasing reach and accessibility cost-effectively, making it simple to get advice at the right time through the most appropriate channel, encouraging self-help where appropriate and addressing gaps without duplicating existing funding arrangements. We do not intend to become a provider of debt advice ourselves.

22. We made agreements with delivery partners to ensure the continuation of free face-to-face debt advice, following transition from funding by BIS, and are now working with them to ensure access for 150,000 people in England and Wales in 2012-13 – an increase of 50% on 2011-12. We also secured proportionate funding to contribute to the provision of debt advice in Scotland and Northern Ireland.

23. We are also developing a longer-term model for debt advice provision that ensures service levels and outcomes are consistent and users know where to get the right advice, and which increases the participation of creditors in fair-share arrangements.

How effective is the MAS’s internal administration and expenditure on staff and other resources?

24. The Service’s expenditure on staff and other resources is set out in our 2012-13 business plans.

25. Corporate governance standards and internal financial controls are overseen by our 12-member Board (eight of whom are non-executives) and Audit and Risk Committee, both of which are chaired by non-executives.

26. Between April 2010 and October 2011, the FSA provided us with operational assistance to enable efficient handover to an independent body. We are now in the second and final year of a formal transformation programme which will see ongoing expenditure on staff fall by 30% - from £10m in 2011-12 to £7m in 2012-13 - as we increase user numbers by 46% over the same period.

27. In 2011-12, our Service was used by some 1.3m people and had an annual budget of £43.7m, equating to around £34 per person. We project, for 2015-16, 11m users and a broadly flat annual budget, equating to about £4 per user, indicating an 88% reduction of cost for each.

28. To reach over 11m people annually we need to generate greater awareness of, and trust in, the Service. Such levels of use will help to fill the advice gap, deliver impact and greater value for money. We need to build recognition as a provider of generic money advice to help fill the current advice and capability gaps. Hence the commitment of substantial resources to achieve consumer reach and engagement.

29. Of the £34.5m for debt advice activities in 2012-13, 94% is allocated to fund the delivery of free advice. The balance of £2.1m funds work to develop a new, more sustainable long-term model for high quality debt advice. Ultimately, our aim is to align our debt advice work with our overall money advice operation and so reduce, over time, the demand for debt advice.

30. The recent BIS Select Committee Inquiry into debt management included a recommendation on the salary of our Chief Executive. We addressed this in our response. The terms of Mr Hobman’s remuneration were set by the FSA before he was appointed. The Money Advice Service Remuneration Committee, on behalf of the Board, determines the remuneration of the Directors, including the Chief Executive, subject to approval of the FSA.

31. From 1 June 2012, his remuneration will be £250,000 with additional bonus and pension entitlements. This compares to a total annualised remuneration package in 2010-11 of £364,061 (of which £318,114 was paid pro rata) and £314,061 in 2011-12 [9] . Mr Hobman has waived his entitlement for a bonus in 2011-12 and volunteered to move from his original FSA-based contract to a new one from 1 June 2012, thereby foregoing further benefits worth approximately £25,500 and an employer pension contribution of £38,018 annually. He is eligible to join a new contributory pension scheme with an employer contribution capped at 10% of salary. The Board believes this level of remuneration is consistent with the need for the CEO to be a high calibre individual with financial services and change leadership experience and capable of establishing a new organisation to deliver ambitious objectives.

What accountability mechanisms are in place for the MAS? Are they sufficient? How can the effectiveness of MAS be assessed?

32. We were established by the Financial Services Authority (FSA) as part of its duties under the Financial Services Act. Our twelve Board members are appointed, and can be removed, by the FSA. For the Chair and Chief Executive, such action requires the additional approval of HM Treasury. The FSA approves the remuneration of all Money Advice Service Board members.

33. We are obliged to consult HM Treasury, BIS, and the OFT when preparing our budget and Plan and additionally the FSA’s Practitioner and Consumer Panels for our proposed Business Plan. We also consult on these with devolved nations’ Governments and our non-statutory Industry, Consumer and Debt Forums. Annual plans and budgets must then be approved by the FSA Board.

34. In addition to these statutory and voluntary consultations, the FSA consults annually on the proposed industry levy rates to pay for the Service.

35. Our Annual Report and accounts have to be presented to the FSA having been agreed by our Board and the accounts approved by an independent auditor.

36. The FSA have the ability to appoint an independent person to conduct reviews into the economy, efficiency and effectiveness of our use of public resources.

37. Alongside the FSA’s governance role, we will be subject to an HM Treasury led review of the Service to ensure that it remains a suitable model to deliver consumer financial education and support the wider consumer protection agenda. This will take place in 2013-15.

38. The Government is proposing within the Financial Services Bill to enhance accountability by requiring the Service to lay its accounts before Parliament and be subject to NAO audit, and for the NAO to launch VFM studies.

39. These statutory accountability mechanisms are strengthened by our Memorandum of Understanding with the FSA. We are currently consulting on a draft Memorandum of Understanding with the FCA. [10]

40. The effectiveness of the Service in fulfilling its statutory functions can be assessed by comparing performance published in our Annual Reports with targets in our Business Plans.

41. In 2012-13 we are introducing new tools to measure, analyse and draw insight from customer behaviour and the performance of the service.  This will give us even greater insight and help drive effectiveness.

42. A major quantitative survey will help provide a new baseline measure of financial capability – the first since 2006 – to help us measure the impact of the Service on long-term behaviour.

To what extent are the services provided by the Money Advice Service also provided by other organisations? How does the Money Advice Service compare to these organisations?

43. With so many capable commercial and non-commercial providers of advice, information, products and services, it is inevitable that there will be some overlap of provision. Existing provision has not, however, proved sufficient to eradicate the capability and advice gaps. We have built a Service uniquely focussed on money advice, operating across multiple delivery channels to provide generic money advice. We will develop a refreshed UK strategy for financial capability to help articulate our place in the wider advice landscape and to demonstrate our unique role within it.

44. We do not seek to compete with other organisations. To further our statutory objectives we work closely with organisations such as Directgov, the Ministry of Defence, Job Centre Plus, AgeUK and the Midwives Association, and partner with others including Citizens Advice and its devolved nations’ counterparts. We anticipate half of our target of 11m users will come through partnerships.

45. In 2012-13, all direct delivery of debt advice is undertaken through partners and we expect this approach to continue if standards are met. We are the largest funder of Citizens Advice in England and Wales, through agreements worth £23m for the provision of debt advice.

46. Our Service signposts extensively to other sources of advice and information. Our website includes links to over 300 external organisations. In 2011-12 online visitors used over 40 referral points to access intermediaries for the regulated advice sector such as unbiased.co.uk.

Is the Money Advice Service reaching its target audience? Are any groups unable to access the Money Advice Service’s services? Who is worst affected by a lack of knowledge of financial matters? Should the Money Advice Service have a greater role in financial education in schools?

47. As described above, and in accordance with our statutory responsibilities, our primary target audience is people with a money advice need where they are facing an expected or unexpected life event or a financial decision for which they are not fully prepared. To facilitate this, we offer:

a. a high-quality online generic financial advice service

b. a UK-wide telephone helpline service

c. a UK-wide network of over 100 Money Advisers offering face-to-face advice sessions, with over 70% of sessions currently being delivered to those with high financial vulnerability and,

d. we are funding the delivery of 150,000 free face-to-face debt advice sessions in England and Wales, and funding projects in Northern Ireland and Scotland.

48. In 2011-12 we distributed over 470,000 guides to expectant parents and 193,000 copies of the Redundancy Handbook. We remain committed to printed material where this can be achieved cost effectively to maximise reach, and plan to distribute three million paper-based guides in 2012-13.

49. We support the recommendation of the Committee (FCA report, Jan 2012) that young people should receive the learning and skills in schools to make sense of financial advice in later life. We recently completed an analysis of financial education initiatives funded by the financial services industry. 

50. We will announce shortly, in consultation with stakeholders, how we propose to take our young people work forward. This will be based on a clear definition of expected outcomes for education and piloting initiatives to deliver behaviour change for this critical third pillar of our work.

How appropriate is the model, using fees raised from financial services firms regulated by the FSA, by which the MAS is funded?

51. The Financial Services Act 2010 allows us to receive funding from a levy on FSA regulated firms, OFT licenced consumer credit firms and central government funding. The Government has deemed this the most appropriate funding model.

52. Our money advice strategy provides benefits to the Industry that funds us. The Service helps increase public confidence in money issues so that they are more likely to approach the industry and buy products. In 2009 HM Treasury [11] suggested the benefit to industry could amount to £3.9bn over time. More engaged people should mean less costly customers with reduced risk of mismatch between their needs and what the industry supplies.

53. Debt advice also benefits industry.  A report by the Friends Provident Foundation in 2010 suggests creditors might recover £1bn more every year when people in arrears receive debt advice; the research suggests that even when existing ‘fair share’ contributions are taken into account, the creditors of an average debt advice customer collectively recover over £1,000 more per individual. [12]

 June 2012

[1] http://www.hm-treasury.gov.uk/speech_fst_230512.htm

[2] http://www.publications.parliament.uk/pa/cm201212/cmhansrd/cm120423/debtext/120423-0002.htm col 700

[3] paragraph 179, Report on the Financial Conduct Authority , January 2012

[4] With HM Treasury approval in the case of the chair and chief executive appointments.

[5] MAS, Understanding Consumers’ Money Management , March 2011.

[6] UK Pensions Report, Scottish Widows, May 2012

[7] MAS, Money Mate , August 2011

[8] See for example, Transforming Financial Behaviour - developing interventions that build financial capability , CFEB, 2010.

[9] 2010-11 and 2011-12 figures unaudited

[10] http://www.moneyadviceservice.org.uk/_assets/downloads/pdfs/fca_mas_draft_mou_20120229.pdf

[11] http://www.hm-treasury.gov.uk/d/fin_bill_ias.pdf

[12] http://www.friendsprovidentfoundation.org/reports.asp?itemid=283&itemTitle=The+impact+of+independent+debt+advice+services+on+the+UK+credit+industry&section=24&sectionTitle=Reports

Prepared 15th June 2012