HC 271 Money Advice Service

Written evidence submitted by The Financial Services Consumer Panel

Executive summary

1.1 The Financial Services Consumer Panel welcomes this opportunity to provide evidence to the Treasury sub-Committee inquiry into the Money Advice Service (MAS).

1.2 The Panel has long been an advocate of generic financial advice as we believe this can deliver significant long-term consumer benefits by helping people make sound, confident financial decisions and manage their money more effectively. Such a service is particularly important given the low levels of financial capability in the UK and the current lack of confidence and trust in the industry which prevents consumers from engaging effectively.

1.3 The Panel recognises the MAS has faced significant challenges from various quarters. Given it is an organisation in its infancy, which needs time to develop, establish and refine its proposition, we feel some of this criticism is unfair.

1.4 However, the Panel is concerned that, to date, the MAS has failed to live up to expectations. There is a danger the MAS tries to be ‘all things to all men’ and could spread itself too thinly, failing to achieve the step change that is required in terms of raising financial capability and effecting change in people’s money habits.

1.5 It is essential that key relationships are formed between the MAS and other organisations so that consumers are quickly and effectively directed to other sources of support, including access to products and services. This needs to be obvious and seamless so that consumers, rather than being frustrated by merely a signposting service, are passed on effectively to other helpful providers. We believe the MAS should aim to get as close as possible to regulatory boundaries to ensure it gives as helpful guidance as it can. We believe it errs on the cautious side at present and that it can do more to offer helpful information and direction.

1.6 Given the importance of its task, it is essential that MAS has sufficient resource to be effective notwithstanding the need to control expenditure and focus resource on essential activity.

1.7 We would welcome significant change to ensure the consumer benefits of a generic advice service are delivered:

· the critical role of the MAS to coordinate debt advice services should be reflected as a statutory function of the organisation, as proposed by the Financial Services Bill, rather than included under its more general responsibility to provide ‘information and advice to members of the public’ [1] ;

· the FSA should make greater use of its existing powers and should be given the explicit authority to regularly monitor the MAS’s ongoing efficiency and whether it is meeting its statutory objectives;

· the MAS should more clearly target its customers. At present there is little by the way of definition of actual target audiences. Without clearer targeting it will be difficult to assess the effectiveness of the MAS; and

· greater priority should be given to increasing financial confidence and capability among young people to ensure the next generation starting their adult lives are better equipped to manage their finances.

2. 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?

Are these the right objectives for MAS to have?

2.1 The Panel fully supported the creation of the MAS as we believe a generic advice service can deliver significant benefits in terms of helping people manage their money more effectively. This is particularly important given low financial capability in the UK and the need to foster consumer confidence and trust. We therefore feel the MAS core statutory objectives are appropriate.

2.2 However, the Panel feels considerable work is still needed before the MAS is able to meet these objectives. While the Panel recognises the MAS is an organisation in its infancy which, given its wide remit, needs time to refine its proposition, we are concerned that it has so far failed to live up to expectations. [2] We believe it is critical for the MAS to develop a series of clear priorities for both the short and medium term. The existing suite of products could then be improved and expanded, in line with this plan, to provide services which will give customers the confidence to manage their financial affairs effectively.

2.3 Underpinning the MAS core objectives are five statutory functions which help direct the organisation’s work. [3] We strongly support the intention, through the Financial Services Bill, to explicitly include the MAS responsibility to coordinate and deliver debt advice as a statutory function.

2.4 The Panel has long argued that it is essential for consumers to be able to access effective debt advice services, especially in the current economic climate. This is reflected by research undertaken by the Money Advice Trust which estimates that in 2012 1.7 million people will look to free-to-client debt advice services for a help. [4] The Consumer Credit Counselling Service (CCCS) also reports that half of all payment problems among their clients are due to unemployment and reductions to household income. [5] Given over 2.5 million people are currently unemployed, about 8% of the eligible UK workforce, the Panel believes the critical role the MAS has to coordinate debt advice services should be reflected as a statutory function rather than included under their more general responsibility to provide ‘information and advice to members of the public’ [6] .

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

We have no evidence to submit in this regard.

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

4.1 The statutory accountability mechanisms of the MAS are set out in Schedule 1 of the Financial Services Act 2010. [7] These include:

        when developing the annual budget, the MAS must consult: the Treasury (HMT), the Secretary of State; the Office of Fair Trading (OFT) and any other persons as appropriate. The FSA is responsible for approving this budget;

        when developing the annual plan, the MAS must consult: HMT, the Secretary of State, the OFT, the Practitioner Panel, the Consumer Panel and any other persons as appropriate. The FSA is responsible for approving this plan;

        the FSA has the ability to appoint an independent auditor to review the economy, efficiency and effectiveness of the MAS, and must publish a copy of this report as appropriate; and

        the Chair and Chief Executive are accountable to the Treasury.

4.2 The Panel has taken its responsibility to review and comment on the MAS annual plan very seriously and has striven to engage early in its planning process. As part of this, representatives from the MAS have attended two Panel meetings in the last year. In relation to its 2012/13 annual plan, we urged the MAS to:

· clearly set out its Key Performance Indicators;

· deliver more action orientated advice, with success measured on the number of people that took action as a result of using the service;

· maintain the provision of face-to-face advice, particularly for debt advice services;

· ensure financial education, particularly among young people, is given sufficient priority; and

· effectively evaluate their performance on an annual basis.

4.3 The Panel believes there is significant scope to enhance the accountability of the MAS to ensure the consumer benefits of the service are realised. In particular, we believe the FSA should make greater use of its existing powers, but also be explicitly given the authority to assess on a regular basis:

· whether the MAS is meeting its statutory objectives; and

· the ongoing efficiency of the MAS.

4.4 The Panel believes greater accountability could also be achieved by the MAS adopting a more open and transparent approach to consulting key stakeholders about the development of the service. This includes more proactively seeking input to and consulting more widely on their Business Plan at an early stage in its development as the Financial Ombudsman Service does. [8] Better use could also be made of the intelligence provided by its User Forum to guide the development of the service. This will ensure the views of a wider range of stakeholders are considered as the proposition evolves.

4.5 We also feel the MAS should more systematically demonstrate its effectiveness by reporting on progress towards delivering both its objectives and its short and medium term goals. For this to be successful, the MAS will need to set out more clearly its key performance indicators in their Business Plan.

4. 6 At present we are concerned with the MAS definition of its target audience(s) and the risk that the service will spread itself too thinly without clear targeting. In its 2012/13 Business Plan [9] MAS sets itself targets for the percentage of customers indicating it has ‘provided the required information’ (75%), and ‘helped them decide on a course of action’ (50%). We believe these are far too broad and high level and offer little by the way of definition of an actual target audience. Without clearer targeting and more detailed questioning it will be difficult to assess the effectiveness of the MAS and for it to improve the effectiveness of its services .

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 As we have outlined above and in our response to a later question, the MAS is seeking to help a very broad range of consumers. It is therefore inevitable that there will be some overlap with the services provided by other organisations. The Panel feels that, in principle, these overlaps are appropriate especially as these may not be evident to consumers who are searching for help and advice on their financial matters.

5.2 The MAS also provides services which are not widely offered by other organisations. This is especially true of the advice to help people save for their future and ensure their families are protected. In 2012, the Panel commissioned research to look at the ‘advice gap’ in the UK. [10] This research concluded that there were a number of factors which were increasing the advice gap, which can, in part, be met by a generic advice service such as the MAS. These factors include:

· full advice shifting significantly up market;

· key withdrawals by high-street brands;

· simplified advice development shelved; and

· generic advice services being asked to do more with less.

5.3 The Panel recognises that firms and individuals offering full ‘regulated’ financial advice, such as Independent Financial Advisers (IFAs), can provide a more detailed and sophisticated service compared with that offered by the MAS. However, even the industry’s own estimates suggest that the cost of these services means they are beyond the reach of two-thirds of the UK adult population. [11] Furthermore, the availability of these services is widely expected to reduce, at least in the short-term, as a consequence of the FSA’s Retail Distribution Review (RDR). The Panel therefore feels the MAS fulfils a valuable and critical function in providing help and support for consumers who are unable to access the services offered by FSA authorised advisers.

5.4 However, to avoid the perception that the MAS is unnecessarily duplicating or seeking to replace existing services the Panel believes it is critical for the MAS to:

· review its position within the markets in which it operates and develop a clear strategy on whether and when it is a co-ordinator or a provider of services; and

· develop a clear modus operandi that is more transparent and collaborative. This would include sharing its own thinking and plans at appropriate stages, enabling key stakeholders to influence its work, and making a constructive contribution to the work of related organisations.

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?

Consumer access to the MAS

6.1 The Panel fully supported the Thoresen Review recommendation that the national generic advice service should be available to all and that "there will be no such thing as a ‘typical user’". [12] For this reason, we are pleased that the MAS is looking to help people at different life stages and from different socio-economic groups. Like the Thoresen Review, the MAS has estimated that 19 million people could benefit from generic financial advice every year. [13] This represents nearly one-half of the UK adult population.

6.2 As we indicate in paragraph 4.5 there is a significant risk that in trying to help a very wide range of consumers, the MAS resources will be spread too thinly. Although the MAS is in its infancy and needs time to develop, we are not convinced it is so far reaching and influencing the behaviour of its target audience. Furthermore, although the MAS Business Plan sets ambitious targets, which could see over 11 million people benefit from the service annually in just five years, the Panel would welcome further detail about how this will be delivered. [14]

6.3 To help consumers understand the MAS role in the financial services landscape and the scope of the proposition, it has been undertaking a multi-channel brand awareness campaign. The Panel supports the objectives of this campaign, but has not seen any evidence to indicate whether this is successfully raising awareness of the service. In contrast, the Financial Services Compensation Scheme (FSCS) conducted a review of its 2011 awareness campaign which concluded that there had not been a sustained improvement in consumer awareness of the FSCS. [15] It is therefore working closely with the FSA to develop a more targeted awareness campaign. We believe the MAS should itself take a more targeted approach.

6.4 To reach the widest possible audience, the MAS is relying principally on providing an online source of information and interactive health check. The Panel feels the outputs generated by the financial health check are too generic to provide clear prompts to users as to how they should go forward and does not stimulate more active engagement with financial services.

6.5 The Panel would like to see evidence of the achievements of the financial health check and for the MAS to develop its capacity to deliver more personalised, action-oriented outputs. We also suggest the MAS should provide a broader range of services considering the wide-ranging consumer needs for financial information and advice. Given its, hopefully, growing client base, we believe there is a role for a more proactive management of that client base to ensure customers are contacted appropriately on an ongoing basis.

6.6 The Panel recognises that providing information and advice via online services is a cost effective way to ensure the service is available to a wide range of people. However, as 5.7 million households do not have an internet connection, we feel it is important for consumers to be able to access the service via a mix of channels, according to their needs. [16] In particular, we note evidence of significant overlaps between digital exclusion and financial exclusion and would welcome further information on the MAS strategy for reaching more vulnerable consumers who may not even have access to a landline telephone. [17]

6.7 We understand from the MAS 2012/13 budget that £6.6m has been allocated to delivering advice through face-to-face and telephone channels. [18] It is important for the MAS to review, on a regular basis, whether this is sufficient to ensure all consumers are able to access the service through a medium appropriate to their needs, recognising that this may also lead to a review of its budget.

6.8 Finally, the Panel supports the MAS’s intention to undertake research to establish a new baseline of people’s financial capability. This will help provide evidence of the extent to which the Service is having a positive impact on key target audiences.

Consumer access to debt advice services

6.9 In relation to the MAS role to coordinate debt advice services, we have already cited evidence which indicates consumer demand for debt advice will grow in 2012. We are therefore pleased with plans to extend the reach of MAS funded projects. [19] To deliver these targets, the Panel considers it essential for the MAS to establish a collaborative relationship with existing debt advice providers to ensure they have the necessary support and resource to help a greater number of people.

The MAS role in coordinating financial education to young people

6.10 The Panel has long argued that the MAS has a crucial role to stimulate, coordinate and deliver work to help increase financial capability, among young people. This is especially important given that over 50% of England’s teenagers have been in debt by the time they are 17 and 90% worry about money on a daily basis. [20]

6.11 The Panel has been actively encouraging the MAS to work closely with other organisations, such as the Personal Finance Education Group (pfeg), to ensure the next generation of adults is equipped to effectively manage their finances. The Panel considers it essential that there is a wide reaching and comprehensive financial education programme for young people.

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 The Panel believes the overriding priority should be for the MAS to have sufficient resource, and to use this resource effectively, to fully deliver the consumer benefits of a generic advice service.

7.2 Given the significant pressure on the public purse, we recognise that significant and sustained government funding for the MAS is unlikely. Yet we also recognise the concerns of the industry, that funding the MAS increases the cost of their service, especially as these costs are ultimately borne by consumers. However, if the MAS successfully helps more people manage their money effectively, there is likely to be more demand for products and services offered by the industry and greater financial confidence among customers, creating a virtuous circle. The Panel therefore feels, in the absence of an alternative credible funding model, an industry levy continues to be the most appropriate method of funding the MAS.

8. Annex: The Financial Services Consumer Panel

8.1 The Panel is an independent statutory body, set up to represent the interests of consumers in the development of policy for the regulation of financial services. It works to advise and challenge the FSA from the earliest stages of its policy development to ensure the latter takes into account the consumer interest. The Panel also takes a keen interest in broader issues for consumers in financial services where it believes it can help achieve beneficial change/outcomes for consumers.

8.2 Since the Panel was established in 1998, we believe it has helped deliver significant, positive benefits for consumers.  We support the FSA where we believe policies can help consumers and challenge the FSA forcefully when we feel consumers would be disadvantaged. 

8.3 Members of the Panel are recruited through a process of open competition and encompass a broad range of relevant expertise and experience. There are sixteen members of the Consumer Panel, including the Chair Adam Phillips and Vice Chair Kay Blair. Current members have experience of consumer advice, campaigning, communications, market research, journalism, the law, financial services industry, financial inclusion, European issues, financial regulation and compliance and later life issues.

June 2012

[1] As set out in Schedule 1A of the Financial Services and Market Act 2000 (as amended by the Financial Services Act 2010).

[2] The MAS was established in April 2010, originally as the Consumer Financial Education Body, before being formally launched as the service we have today in April 2011.

[3] The MAS five statutory functions are: promoting awareness of the benefits of financial planning; promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services; promoting awareness of the benefits and risks associated with different kinds of financial dealing (which includes informing the Authority and other bodies of those benefits and risks); publishing educational materials or the carrying out of other educational activities; and providing for information and advice to members of the public.

[4] John Gatherwood on behalf of the Money Advice Trust, Demand, Capacity and Need for debt advice in the United Kingdom – 2012 , March 2012

[5] Consumer Credit Counselling Service (CCCS), CCCS statistical yearbook 2011, 2012

[6] As set out in Schedule 1A of the Financial Services and Market Act 2000 (as amended by the Financial Services Act 2010).

[7] Financial Services Act 2010

[8] The Financial Ombudsman Service undertakes an annual consultation exercise which gives stakeholders an opportunity to comment on their proposed annual plan and future direction of the service.

[9] Money Advice Service 2012/13 Business Plan

[10] Nick Hurman and Ian Costain on behalf of the Financial Services Consumer Panel, Researching the ‘advice gap’, March 2012

[11] Association of British Insurers, Increasing consumer access to advice, May 2010

[12] Thoresen Review of generic financial advice: final report , March 2008

[13] The Money Advice Service, 2012/13 Business Plan, 2012 & Thoresen Review of generic financial advice

[14] Money Advice Service 2012/13 Business Plan

[15] Financial Services Authority, CP11/29 Deposit protection: Raising consumer awareness, December 2011

[16] Office of National Statistics (ONS), Internet access: Households and Individuals, August 2011

[17] Ellison A, Whyley C and Forster R, Realising banking inclusion: the achievements and challenges, Financial Inclusion Taskforce 2010

[18] Money Advice Service 2012/13 Business Plan & the Money Advice Service, 2012/13 Debt Advice Business Plan , 2012

[19] Money Advice Service 2012/13 Debt Advice Plan

[20] Personal Finance Education Group

Prepared 15th June 2012