HC 271 Money Advice Service

Written evidence submitted by Marketguard

1. Executive summary

MarketGuard welcomes this inquiry by the Treasury sub-committee into the Money Advice Service (MAS). We see this as a timely opportunity to examine the core statutory objective of MAS in terms of their validity and how well these are being met. MarketGuard is broadly supportive of the core objective MAS has and its work to meet these. The extent to which MAS can enhance consumers’ understanding of financial matters and their ability to manage their own affairs depends on how effectively MAS can meet its priorities and statutory functions. This submission focuses on one statutory function, identifies a current obstacle to this and suggests how MAS could tackle this.

In its 2012/2013 Business Plan MAS acknowledges that one of its statutory functions is: ‘promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods and services.’ Effectively discharging this function is a prerequisite to achieving the core statutory objective of enhancing the ability of members of the public to manage their own financial affairs. An examination of the poor consumer outcomes in the retail mortgage market show that there is widespread poor awareness of the financial advantages and disadvantages relating to remortgaging. This lack of awareness results in considerable financial detriment and holds back millions of homeowners from managing the financial affairs as effectively as they might be able to. Consequently, these flaws with the system of remortgaging stand in the way of MAS achieving its core statutory objective. To tackle this problem and alleviate consumer detriment MarketGuard has set out several recommendations which we hope the committee will raise in the course of this inquiry.

2. About MarketGuard

MarketGuard is a fully regulated insurance company and is a member of the ABI (Association of British Insurers), FOS (Financial Ombudsman Scheme) and FSCS (Financial Services Compensation Scheme). MarketGuard’s core product offering is RateGuard – a general insurance policy that protects monthly mortgage payment increases from rises in interest rates. All standard variable rate and tracker mortgages are covered as well as fixed rate deals with less than three months to go. Unlike traditional insurance policies MarketGuard offsets all of its risk using wholesale money markets each time it sells a policy. MarketGuard Insurance Company is authorised by the Gibraltar Financial Services Commission and subject to limited regulation by the Financial Services Authority in relation to business conducted in the United Kingdom.

3. Response to terms of reference

§ MAS play a valuable role in improving the financial wellbeing of consumers in the UK. We welcome the effective work MAS undertakes to build the financial capability of the UK population. At a time of acute financial pressure MAS’s focus on helping consumers change financial behaviours and empowering people to manage their money are crucial objectives.

§ The statutory core objectives for MAS are right and worthy objectives for the organisation to set out to achieve. Meeting these objectives will tackle very real problems and create positive outcomes for the consumer and wider economy.

§ The extent to which MAS can meet its core objectives depends on how effectively MAS can realise its priorities for 2012-2013 and statutory functions set out in its business plan.

§ In this submission we focus on one stated priority, identify an emerging obstacle to this and suggest how MAS could address this issue.

§ In its business plan MAS sets out the following priority:

‘We will work with stakeholders to promote the benefits of better informed consumers who overcome inertia and become proactive consumers of financial services products.’

Promoting proactive consumers of financial services products is an absolutely necessary condition which must be achieved first to enhance consumers’ understanding of financial matters and their ability to manage their financial affairs. In short, this priority underpins the core objectives of MAS.

§ This priority is particularly acute in the retail mortgage market, where there is a clear need to better inform customers of the range of financial products and empower customers to be more proactive. Set out overleaf is a short exposition of the pr oblem:

5. Recommendations for action

§ This problem is indicative of a degree of inertia and lack of proactivity. These consumer behaviours arise from the perverse incentives caused by the system of regulating mortgage advisers. Overcoming this inertia and engendering a proactive consumer requires changes both to regulation and financial advice.

§ One of MAS’s statutory functions is to ‘promote awareness of the financial advantages and disadvantages of in relation to the supply of particular kinds of goods and services.’ In light of this statutory function tackling the problems of remortgaging must sit front and centre for MAS.

§ We call on MAS to fully recognise the range of alternatives to remortgaging in the following ways:

o Informing customers on the potential disadvantages to remortgaging and the alternatives in the relevant section in its new financial advice to be introduced from Summer 2012 onwards.

o Including alternatives to remortgaging in the online tools MAS uses to allow people to plan for life events such as homeownership.

o Including information on alternatives to remortgaging in the videos, downloadable templates and web chats, where relevant.

§ We urge the sub-committee to raise these issues within the course of its inquiry and ascertain MAS’s response. Awareness of the problems in the retail mortgage market does not reflect the scale of the consumer detriment. Whilst these issues have been raised through parliamentary questions tabled by Lord Oakeshott and by the Shadow Financial Secretary they warrant further consideration in the appropriate forum, such as this inquiry.

June 2012

Prepared 15th June 2012