HC 271 Money Advice Service

Written evidence submitted by IFA Centre

Executive Summary

IFA Centre is a new trade association established to represent and support Independent advice firms, now and post-2012. Full membership is only available to Independent advice firms, in respect of the number of people authorised with the Adviser function (CF30). Individual membership is also available in respect of Independent advisers whose firms, post-2012, will not be eligible for membership of IFA Centre.

IFA Centre currently represents 20 firms and 72 independent advisers.

The Managing Director is a Fellow of the Personal Finance Society (FPFS) and a Chartered Financial Planner. As Principal of Professional Partnerships she had 10 years’ experience of direct authorisation as an Independent Financial Adviser (IFA). As the IFA representative on the Smaller Businesses Practitioner Panel she has engaged with the Financial Services Authority (FSA) on the RDR Sustainability working group, as well as the Treating Customers Fairly (TCF), Professionalism and Financial Ombudsman Service (FOS) consultative groups.

1. The Money Advice Service (MAS) has valuable core statutory objectives, but IFA Centre argues that "advice" is not one of those objectives, the use of the word "advice" in its title breaches clear, fair and not misleading requirements, and may devalue the importance and significance of regulated advice when it is given.

2. MAS is generally believed to be unaccountable, Levels of remuneration are excessive, results are unclear, value for money does not seem to form any part of assessment, and capital projects are of uncertain value or benefit.

3. MAS provides information and guidance which is simplistic, potentially to the point of misleading, and its comparison tables do not reflect actual terms on offer from providers, especially in the very sensitive field of annuity purchase.

4. MAS has spent significant sums on projects which seem both costly and ineffective in terms of changing financial behaviour. Firms are unaware of specific targets or measures by which MAS could be assessed.

5. Other organisations provide comparable or better information and guidance and we would do well to challenge whether other, more cost-effective and effective organisations could make better use of the application of similar levels of funding.

6. Any form of education on any subject in a school is best left to teachers who have been appropriately trained for the task. To focus on youth while ignoring the pressing needs of older investors with complex decisions to make as they approach retirement is a mistake.

7. Many financial advisers and firms provide pro bono advice, work in Citizens Advice Bureaux, and deliver Money Made Clear presentations, in their own time. Perhaps, in recognition of their pre-existing commitment to financial education and support for those not otherwise able to take advice. firms with such commitments could be exempted from the MAS levy.

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

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

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

1.1 In reviewing the Draft Memorandum of Understanding (MOU) between FCA and MAS, we note this document makes clear that the MAS’s statutory function is to enhance understanding and knowledge of financial matters, and the ability of the public to manage their own financial affairs (para 6).

1.2 In the following paragraph these two functions are elucidated. The primary point of contention with the advice community is the inclusion of "the provision of information and advice to members of the public" (para 7 fifth bullet, author’s emphasis).

1.3 Concerns have been regularly expressed about the name for the organisation, and whilst at one level it is possible to understand that consumers may wish to approach MAS for "advice" about their situation, this particular word confuses advice in the "understanding, information and direction" sense of the word with the sense in which the adviser community and the regulator itself uses the word. In short, we observe "mission creep" as MAS’ functions and objectives move from education, information, and awareness into advice.

1.4 IFA Centre considers that the name of the service itself is confusing and prevents it from meeting its statutory objectives. Money Information Service would at least be less misleading. Even Financial Education Service would be more accurate and appropriate. An organisation that is actually not authorised to give advice, in the meaning usually attributed to regulated financial advice, should surely not have "advice" in its name.

1.5 In an environment where so much attention is placed on the quality of advice, the professional standing of regulated advisers, the responsibilities of regulated firms, and the costs associated with authorisation to provide regulated advice, we do not believe that it is appropriate for the functions of MAS to extend to "advice".

1.6 Far from enhancing understanding, we contend that its inaccurate use in this context will cause the public to become less certain of what advice is, where to find it, its value, it usefulness, and the extent to which they can rely on it in planning their financial futures.

1.7 With reference to further principles for the relationship between FCA and MAS (para 18) we are dubious that MAS can help the FCS in ensuring "that the relevant markets work well" by "providing trusted, free, non-sales advice".

1.8 What, we wonder, is "non-sales advice"? Advice that doesn’t result in a product sale? Generic product information? Unregulated advice on unregulated products? Why should MAS advice be trusted more, the same of differently, than any other form of advice? And how could such advice help a relevant market to work well?

1.9 IFA Centre feels that neither the FCA nor MAS are well placed to deal with information about potential consumer detriment, nor that communications to the public about "issues and risks associated with the financial market place" will be particularly effective. There is considerable evidence of advisers providing information to the FSA regarding products or firms which posed a risk to consumers and very little evidence that such evidence was noted, acted upon or promoted to consumers by way of warnings or alerts.

2. Are these the right objectives for MAS to have?

2.1. We are generally confident that these higher level objectives, with references to "the provision of advice" and "providing trusted free non-sales advice" omitted are appropriate objectives.

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

3.1. Prior to 2010, the financial services community’s consumer education and financial capability objectives were met within the Financial Services Authority.

3.2. One cannot help but wonder if this situation were to have remained in place, the costs of an operation similar to that of the Money Advice Service would have been controlled, not least by parity with peers within the organisation with similar levels of knowledge, experience and responsibility, from the most junior to the most senior.

3.3. The benefit package for the Chief Executive has been particularly noteworthy. In times of financial austerity, in times when corporate governance and remuneration strategies are in sharp focus, there is a visceral aversion to a remuneration structure which sees the Chief Executive of an organisation with a budget of £80m receiving greater remuneration than the Prime Minister.

3.4. Interestingly, while the MOU hints at oversight and accountability (para 11) especially in relation to FCA oversight of Board appointments, budgets and plans, reports and accounts and so on, most advisers are not aware of any such accountability or oversight and feel that MAS is not accountable to its funders or its overseers. MAS and / or FCA would reassure advisers more if they explained the level and nature of accountability clearly.

3.5. Value for Money does not appear to be an explicit requirement placed on MAS. Perhaps it is implied in some of the other areas, especially approval of budgets and plans, but we recommend the introduction of a formal Value for Money obligation. It is too easy to plan to spend other peoples’ money without serious consideration of value or effectiveness.

3.6. Projects, frequently IT driven, such as the online health check, involve commitment to large up front expenditure on development of such tools. We have recently been made aware that while many have looked at the tool, few have actually been prompted to take action as a result of what they have learned. How does this outcome correlate with project expectations? Does this project represent value for money?

3.7. The MAS has spent huge amounts of money on an ill-thought-out marketing campaign. We understand the figures, from last year's first campaign were £4m spend generating 400,000 website visitors. At £10 per visitor, this would be judged to be expensive when set against external benchmarks.

3.8. Furthermore, in the light of research indicating that few actually took action as a result of their interaction with MAS, this total and per capita spend does not appear to have met MAS’ own objectives.

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

4.1. It is surely significant that those who provide the funding for this service are largely unaware of the MOU and feel that the service as a whole, and its key personnel, seem to be unaccountable.

4.2. There appears to be no mechanism in place for MAS to be accountable to levy payer / funders. It should also be made more apparent to its users who is paying for it. The public assumes that it is a government funded service. Firms would feel more positive towards paying for this exercise if they were given the credit for doing so!

4.3. We consider that effectiveness in this context could appropriately be measured by how many people are assisted to make changes in habits which improves their financial planning strategy. This can only be assessed by independent monitoring and feedback from the end user, perhaps as part of baseline and tracking work.

4.4. When compared to other campaigns, such as the 5-a-day campaign, we note that the latter had a clear message that could be communicated, a clear goal that could be measured, and with an identifiable impact and benefit.

4.5. IFA Centre considers that a specific target or measure could be defined, such as "20% of peoples' incomes allocated to long-term savings by 2020" though we do of course recognise that such a goal, measured in such a way, could have other financial effects as savings increase and consumption falls, thus potentially stalling economic recovery.

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

5.1. Most of the services are provided by other organisations. Generic information on savings rates, loans, mortgages is easily, and freely available elsewhere and in a range of formats.

5.2. MAS's annuity service is free, and occasionally used by IFAs in preference to other chargeable systems. However, it is less accurate than those provided by other organisations; it is also misleadingly badged as a "retirement income comparison" yet only provides information about annuities, not other forms of retirement income.

5.3. In addition, IFA Centre is aware that although rates quoted are believed by users to be the best rates available, on the basis of which retirement income, or annuity purchase, decisions maybe made, advisers contacting annuity providers indicating rate competition are able to obtain further improvements to the rates, with direct purchasers disadvantaged.

5.4. If a service is to be used as a central repository of information to help consumers unwilling or unable to take advantage of full regulated financial advice, the least we can do is ensure that market participants make their best rates available, otherwise "getting the best deal" remains in the purview of the adviser, rather defeating the objective and purpose of MAS and its resources.

5.5. IFAs could make use of savings comparisons, or encourage clients to do so, but it is acknowledged to be difficult to use, fails to provide some basic services (like a comparison for cash ISAs, for example).

5.6. As practitioners, our members also feel that savings and other calculators are unhelpful as they require the user to input all the variable criteria and make no allowance for charges and so on. Additionally, experienced and qualified advisers feel that most of the guidance is too restricted and simplistic, which may explain why MAS users still do not feel confident enough to act, having interacted with the service.

5.7. A more appropriate focus could be the interaction of benefits with overall saving strategies, dealing with the options for seeking advice and how it is paid for, and how to construct a sensible DIY approach for those who can’t afford advice.

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

6.1. IFA Centre is not specifically aware of a "target audience".

6.2. However, we are concerned that there is a section of the population caught by being in no-one’s target audience. At its simplest, benefit claimants and the wealthy (who can afford advice) have many services at their disposal. The section of the population badly served by any money guidance service is that which pays taxes, which has saved assiduously and built up a modest sum for their future financial security. They require more than generic information but consider themselves "out of the market" for regulated advice.

6.3. We believe that while school children can benefit from some straightforward lessons in money and debt management, budgeting and perhaps early mention of auto-enrolment, financial education may be more usefully applied to those approaching retirement, as the environment is so complex; our members suggest that school children may not need education as much as older people who are facing real difficulty and are having to guess at the best answer to complex questions (e.g. should I take that pension now).

6.4. PFEG will be better placed to comment on financial education in schools, but a number of organisations have created and deliver a wide range of educational materials to schoolchildren of all ages. IFA Centre feels that if it is important enough to deliver financial education, then schools should be given the resources, including appropriate training, to deliver this themselves, impartially and in the context of the remainder of the curriculum. Teachers have been trained to teach and to communicate with children of different ages, using words and concepts most suited to their knowledge and understanding. They deliver health, social education, citizenship, sexual health, drugs and ethical or religious messages. If financial education is important then include it in the curriculum, but do not expect financial services firms to fund this.

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

7.1. At one level, it could be argued that financial services firms funding MAS is not appropriate. It is counter-intuitive that firms are forced to pay for a service which people use as an alternative to seeking proper advice. Worse, this is usually done under the impression that this free service is funded by Government.

7.2. Furthermore, when businesses are faced with financial challenges of their own, some economic, some commercial, some regulatory, firms tend to feel aggrieved that they also pay levies fund the work of the Money Advice Service.

7.3. This sense of unfairness arises in no small part because many advisers commit their own time to contribute to financial education work, not least through the programmes put in place by MAS. In this way, such firms are effectively paying twice, through the levies and through the opportunity cost of their personal involvement .

7.4. IFA Centre feels that it is more appropriate for financial firms to fund the services offered by MAS if it is made perfectly clear to MAS users that the industry is paying for it.

7.5. Costs should be agreed in advance with the industry and we suggest a partnership approach that introduces real accountability to the scheme funders, i.e. levy paying firms, not the FSA or FCA.

7.6. Enquiries could be made as to the number of regulated advisers who give their time to help MAS to pursue its objectives, without pay, and without expenses.

7.7. In recognition of their pre-existing commitment to financial education and support for those not otherwise able to take advice. firms with such commitments could be exempted from the MAS levy.

May 2012

Prepared 15th June 2012