HC 271 Money Advice Service

Written evidence submitted by the Association of Independent Financial Advisers

The Association of Independent Financial Advisers (AIFA) is the representative body for the IFA profession. There are approximately 16,000 adviser firms that employ 128,000 people, and turnover is estimated at £6.5 billion (including £4.5 billion from life policies, £1 billion from fund management and £1 billion from mortgages and general insurance). Around 20% of the UK population regularly use an IFA, with c45% consulting one from time to time. Membership is voluntary and on a corporate basis. IFAs currently account for around 70% of all financial services transactions in the UK (measured by value). As such, IFAs represent a leading force in the maintenance of a competitive and dynamic retail financial services market.

Introduction

AIFA welcome this opportunity to comment on The Money Advice Service. While we support the need for generic advice and the overall objectives of MAS, we are concerned about the funding model and that the appropriate evidence is not available to demonstrate its effectiveness. Additionally we are unconvinced that a predominately online service can meaningfully change behaviour and understanding of the public as envisaged. We strongly believe that the MAS should never provide regulated advice and should remain a source of information and signposting. The service should help consumers clearly identify when they need more expertise and we endorse the current signposting to regulated financial advice.

Questions

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

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

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

We have yet to see evidence that MAS is meeting its objectives. We have seen figures (as discussed more fully below) of numbers who have accessed the site and used the various online tools but the number of hits on a website is not indicative of the behaviour change needed to meet the goals. MAS needs to demonstrate the service it provides is influencing consumer behaviour. To demonstrate effectiveness we need to see that consumers are managing their financial affairs in an increasingly knowledgeable and effective fashion through outcomes, i.e. taking action, saving more, getting protection, etc.

2. At this stage we have yet to see any full assessment of the real value the service holds. Are these the right objectives for MAS to have?

AIFA support the objectives but we have concerns. We recognise the real need for the government to tackle the lack of understanding and knowledge the public possess in relation to their own current and, particularly, future financial affairs. We are concerned however that the Money Advice Service will struggle to achieve the change in behaviour required. In particular, whether the length/durability of the engagement will be adequate.

While we think it is important to encourage the public to take personal responsibility for their financial lives. That should include individuals understanding their own limits and when it is appropriate to seek professional advice when considering more complex financial matters i.e. pensions and long-term care planning. MAS need to help consumers understand their capabilities, identify their personal limitations and signpost to expert advice where necessary.

AIFA strongly believe that MAS should not give regulated advice at any point in the future. It is essential that the service provides effective and meaningful information and guidance only and correctly signposts users to the regulated firms for tailored advice.

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

AIFA is concerned that there is insufficient clarity to make a judgement about the effectiveness of cost effectiveness of MAS’s internal administration. AIFA welcome the extension of the National Audit Office’s (NAO) remit to include the MAS. We believe that a thorough examination of the financial agencies for efficiency and value for money should be a priority for the NAO. We are concerned that the MAS is not subject to the same rigorous controls (i.e. HM Treasury oversight) they would be subject to if this was general public expenditure. We need to see evidence that demonstrates the service’s value. We are aware that Unbiased attracts one million visitors annually to its website; the organisation’s budget is £2m.

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

Currently MAS is being assessed via the number of people who have accessed the site and its online tools. As mentioned above, this is not an adequate measure of success/failure. Recent evaluations are concerning. A mystery shopping exercise was conducted during May this year and found that members of MAS staff are unaware of the Retail Distribution Review and the impact on consumers. MAS completed its own survey that concluded that of 1,000 people who completed the online Health Check, 300 did not remember doing so and a further 371 failed to do anything differently. Only 329 people said it played a positive part in changing their financial behaviour.

While AIFA are aware that the target (500,000 visits) for the Health Check has been achieved since launch last June, our concern having trialled the tool is how useful it actually proves and if consumers will fully act on the plan produced. The tool is clear and designed to encourage its users to take steps towards financial planning but once completed it can be easily forgotten or ignored as MAS’s own assessment above indicates.

AIFA feel that the only way to properly assess MAS’s effectiveness is to use performance indicators such as the narrowing of the savings, pension and protection gaps. Furthermore, now that MAS have taken on responsibility for debt advice, the numbers of people in bad-credit situations ranging from being in receipt of notices under the Consumer Credit Act to filing for personal bankruptcy could also be considered a measure. We suggest that these indicators would demonstrate the behaviour change MAS is aiming for.

As mentioned above we stress that without sufficient assessment and scrutiny we cannot ascertain how effective MAS is. As stated, AIFA welcomes the new role for the NAO. We would also welcome the introduction of a more formal role for the financial services sector (which is paying for it) to have oversight and approval of the budget.

5. To what extent are the services provided by MAS also provided by other organisations? How does MAS compare to these organisations?

We propose that the service might draw from the example of other websites that provide information for consumers. As mentioned above Unbiased attracts a significant number of visitors to its site for a relatively modest budget. This suggests that MAS’s budget is overinflated. Again, as mentioned previously, we need to see real evidence that demonstrates why MAS’s business plan requires such huge sums to fulfil when other websites costs are small in comparison.

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

AIFA are keen to see more evidence of who MAS is reaching and the longevity and effectiveness of its relationship with its users. We remain unconvinced MAS will develop sufficient relationships with the 11.3 million people a year (from 2016/17) to have a material impact on their behaviour.

We would argue that the current, predominately online service, is not adequate to fulfil the objectives. Embedding key concepts such as debt-management and saving in school-age children will start to affect some of the necessary change. We await the findings of MAS’s mapping exercise in relation to the current provision of financial education for young people in the UK.

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

We do not think the funding model for MAS is appropriate. They have a blank cheque from the financial services sector without any accountability to it. They do not even have the basic controls that apply to public expenditure in general. AIFA were gravely concerned regarding the announcement that MAS budget increased from £43.7m (2011/12) to £46.3m (2012/13) and the cost burden imposed on firms. Furthermore AIFA are concerned that the intention is to increase MAS’s budget prior to evidence of proven benefit and results. That the service is funded by the financial services industry results in the cost being passed on to the consumer as product prices and charges increase. We would question why a service deemed as addressing a general public need is not funded via general taxation. The Thoresen Review (March, 2008) recommended a split of funding between the government and financial services sector. However, if the industry is to pay for MAS in its entirety, as a minimum it should have a formal role in oversight and approval of the budget.

June 2012

Prepared 15th June 2012