HC 271 Money Advice Service

Written evidence submitted by the Building Societies Association

Introduction

1. The Building Societies Association (BSA) represents mutual lenders and deposit takers in the  UK  including all 47  UK  building societies. Mutual lenders and deposit takers serve around 32 million customers, have total assets of over £375 billion and, together with their subsidiaries, hold residential mortgages of nearly £240 billion, 19% of the total outstanding in the  UK . They hold more than £250 billion of retail deposits, accounting for 22% of all such deposits in the  UK . Mutual deposit takers account for 34% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.

Executive Summary

· The BSA believes that the core statutory objectives of the Money Advice Service (MAS) are the right objectives. Fundamentally we agree with the principle of MAS and we agree that one central body which co-ordinates this function could ensure that tangible benefits are delivered to consumers.

· However, we are concerned that the explicit requirement to co-ordinate and provide debt advice adds an additional layer of complexity, which may hinder MAS in establishing itself as a recognised consumer brand and the go-to place for consumers when they have a query about financial matters

· We also believe that MAS has struggled to clearly identify themselves and we are concerned that significant time and money has been spent on re-branding, rather than on embedding MAS as an organisation, getting the infrastructure right and importantly, agreeing on the action plan to deliver the core objectives over a period of time. The concern in the industry is that MAS is perhaps trying to run before it can walk, attempting to take on multiple aspects of consumer financial matters at once.

· We are also concerned to note that 46% of the 2012/13 budget to deliver against the MAS core statutory objectives has been allocated to marketing/communications. This figure exceeds the per-company advertising spend by the personal banking divisions of Santander, Halifax, NatWest and Lloyds [1] .

· MAS needs to quickly establish a clear, transparent and measurable set of success criteria for delivering its core objectives. This should not only be disclosed and monitored by its own Board, but also by all FSA levy payers, MAS partners and other key stakeholders.

· We believe this is key to ensure that the substantial budget given to MAS via FSA levy payers is delivering on its core set of objectives and making a real difference to the financial knowledge and capability of consumers.

· Overall, we would argue that financial services firms should not be the sole funders of MAS. Unsecured debt, public sector debt including Local Government debt and utilities, also contribute significantly to consumers debt burden. Expanding the reach of MAS funders will ensure that all creditors support the provision of good quality debt advice.

3. However, we are concerned that the explicit requirement to co-ordinate and provide debt advice adds an additional layer of complexity, which may hinder MAS in establishing itself as a recognised consumer brand and the go-to place for consumers when they have a query with regards to financial matters.

4. We do not believe it is possible to co-ordinate some services and also have a requirement to provide them. This has been attempted in the past by other organisations and has not been successful. Inevitably conflict will arise where you are in competition with the suppliers you are funding. MAS should seek to do one or the other, but not both. The BSA believes strongly that MAS should co-ordinate the funding of debt advice across the existing well established and well recognised debt advice organisations that currently operate throughout the UK.

5. Overall, we believe that MAS has struggled to identify themselves since the formal move away from the Financial Services Authority (FSA) (when it was under the auspices of moneymadeclear) to the 'Consumer Financial Education Body' (CFEB). We are concerned that significant time and money has been spent on re-branding, rather than on embedding MAS as an organisation, getting the infrastructure right and importantly, agreeing on the action plan to deliver the core objectives over a period of time. The concern in the industry is that MAS is perhaps trying to run before it can walk, attempting to take on all aspects of consumer financial matters at once.

6. This concern is borne out by the fact that many of the impacts delivered against its core statutory objectives are not visible, therefore it is very difficult to determine the outcomes that MAS has achieved. Whilst some are visible (such as the website and the development of the 'financial health check') it is not entirely clear how these two deliverables are achieving the core objective of enhancing the understanding of the public on financial matters.

7. Furthermore, the MAS strategy has changed substantially in the two years of its existence. There has been a reduction in MAS staff and a move to partnership working. However the lack of detail on how the partnerships will work gives the impression of a fragmented approach.

8. In addition, delivery to consumers has changed, with web based communication now substantially out weighing other channels. However, web based material can provide only generic information and the move away from a focus on telephony and face to face channels, could mean that the ability to provide tailored information or advice is reduced. We recognise the cost implications of such a move, but we believe MAS need to consider carefully whether a move to web based communication delivers value for money.

9. We are aware that substantial customer segmentation work has been carried out with the conclusion reached that the service should be universally focused on meeting financial education needs around life events. The rationale for these changes, how they will be implemented and monitored , are unclear.

10. Overall, the accountability of MAS is unclear and we have seen few tangible results. We expect the MAS to live within its means, perform efficiently and deliver against an agreed, measurable and transparent set of success criteria. In our view MAS still has work to do to be in this position.

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

11. The funding requirement placed on the financial services industry has risen from £32.9m in 2010/11 to £46.3 m for 2012/13 [2] . This is an increase of 40.7%. This increase is substantially above the rate of inflation and in our view demonstrate s a lack of effective resource mana gement and allocation within MAS. In addition, a further £40.5m has been granted in 2012/13 in relation to debt advice. [3]

12. We a re also concerned that 46% of the 2012/13 budget to deliver against the MAS core statutory objectives has been allocated to mar keting/communications. In all MAS propose to spend £21.4m over the 12 month period to establish the MAS brand.

13. Whilst we accept that some expenditure is required, in absolute terms, this figure exceeds the per-company advertising spend by the personal banking divisions of Santander, Halifax, NatWest and Lloyds [4] . We are concerned that there seems to be little clarity on the milestones or success criteria for this activity.

14. The MAS engaged in a significant redundancy programme during the second half of 2011. We understand that this was to remove roles that were no longer required, providing some headroom for new roles and skills. We trust that the appropriate focus will be put on recruiting the right people as a strong team with the right skills is imperative .

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

15. The BSA participates at Director-General level in an industry forum, through which MAS seeks to communicate with the trade bodies which represent FSA levy payers. However, whilst this does provide a forum for comment it has no power of veto, change or oversight. At the most recent meeting in May 2012, MAS appeared to take on board feedback from the industry with regard to the effectiveness of the forum and in our view it was a very productive meeting. It is positive that MAS do now appear to be acting upon feedback.

16. However, there is still a way to go. It is still unclear as to how MAS intends to measure its effectiveness. MAS has stated that it intends to 'reach' 11.3 million people each year by 2016/17, providing practical money advice and personalised money action plans. However, it is not clear what 'reach' actually means in terms of meeting the core objectives of MAS.

17. In particular, whilst 'reach' can be tracked via visits to the website and calls received, this does not take account of the nature of the advice received and whether the customer is more comfortable at managing their money as a result. MAS must ensure that customer 'reach' considers the effectiveness of the advice given.

18. Overall, MAS needs to quickly establish a clear, transparent and measurable set of success criteria. This should not only be disclosed and monitored by its own Board, but also by all FSA levy payers, MAS partners and other key stakeholders.

19. We believe this is key to ensure that the substantial budget given to MAS is delivering on its core set of objectives and making a real difference to the financial knowledge and capability of consumers.

To what extent are the services provided by the MAS also provided by other organisations?

20. In relation to debt advice there are a number of free, well established and well used organisations already in existence. For example, Citizens Advice Bureau (CAB), Money Advice Trust (via National Debtline) and Shelter. Other organisations such as PayPlan and the Consumer Credit Counseling Service provide a free service to consumers, but receive little or no Government funding.

21. These organisations also receive funding from financial services firms and importantly, from other firms, such as unsecured creditors and utility providers. Until recently public funding via the Department of Business Innovation & Skills (BIS) was also available in relation to local government debt, which is primarily Council Tax arrears. The Ministry of Justice (MOJ) has also provided funding to the free advice organisations.

22. There are also a number of other consumer advice agencies, which deal with a variety of issues, including financial services, many of which are well known by consumers, such as Money Saving Expert.

23. We understand that CAB has recently been given the wider remit of being a consumer champion for consumer information, but we are not entirely clear as to how this works in the context of MAS objectives in relation to financial services.

Is the MAS reaching its target audience?

24. In our view this is very difficult to answer due to the issues we have highlighted in terms of MAS having a clear objective as to who and how they are intending to assist. Until MAS is clear with regards to its strategy and measures of effectiveness is not possible to provide an accurate view.

Are any groups unable to access the MAS’s services?

25. We are concerned that the current strategy of using web based communications as the primary communication channel, could exclude some vulnerable consumers. The elderly , for example, may struggle to access this information in a web based format. Those in financial difficulty, or in need of advice , may find the web based information too generic and would prefer a face to face or telephone discussion.

26. We are also concerned as to how those in lower socio-economic groups, those with some form of learning disability and even those in rural locations without access to a broadband connection, will be able to access the MAS information.

Who is worst affected by a lack of knowledge on financial matters?

27. In the latest Mortgage Market Review consultation paper, the FSA has highlighted some key consumer groups which it believes are most at risk and should always receive mortgage advice going forward. These groups are:

- Right to Buy

- Equity Release

- Sale and Rent Back

28. We broadly agree that it is right that these consumers should receive advice in every instance before proceeding with the mortgage. However, we also believe that the advice needs to be much wider than advice on the mortgage. This is where MAS could play a key role.

29. For example, in relation to Right to Buy what the consumer really needs is advice on whether they should move from the social rented sector and become a homeowner. Once they get to the stage of seeking an appropriate mortgage, this decision has already been made. We strongly believe that 'pre purchase' advice for these consumers is vitally important, as many may be attracted by the significant discount available if they purchase their home, but may not fully understand what being a homeowner entails.

30. Ultimately if these consumers enter into homeownership with a lack of knowledge, they could lose their home.

31. The same 'pre purchase' advice concept also applies to Equity Release and Sale & Rent Back. The advice should be focused on 'should you do it' and we believe this is where consumers could look to MAS for this information.

Should the MAS have a greater role in financial education in schools?

32. We believe that the MAS should not have a greater role in the delivery of financial education in schools. Many organisations already operate in this space delivering financial education both directly and indirectly (through teacher training) in schools.

33. The Personal Finance Education Group (pfeg) and the National Schools Partnership [5] in particular have been successful in delivering this. Much of this work is to deliver accredited training materials through sponsors eg financial services organisations which see financial education as a core part of their corporate responsibility programme.

34. The format, tone and content of such material is of vital importance if such an initiative were to be effective, as is the ability to get time in schools for this type of programme. In our view children are more likely to respond to a creative learning programme, relating finance to the real world, rather than being provided with a work book.

35. Arguably, financial education should form part of the national curriculum, rather than as a separate programme. This would also ensure that financial education is delivered to all children in a consistent way.

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

36. Our comments fall into two categories. The first relates to the provision against the money advice statutory objectives and the second apply to the co-ordination and provision of debt advice:

Money Advice

Debt Advice

38. The funding for debt advice is more controversial, particularly as FSA levy payers are now funding debt advice in its entirety, despite other firms (such as utilities and local government) also having a role to play.

39. Financial services should not be the sole funders of MAS. Unsecured debt, public sector debt including Local Government debt and utilities also contribute significantly to a consumer's debt burden.

40. National Debtline figures [6] reported for January and February 2012 show that 92.4% and 98.4% of callers respectively reported having debts other than those associated with financial services providers. Indeed the Money Advice Trust reported that water bill related debt rose by 32% in 2011 [7] alone and that National Debtline had received a fuel debt related call every five working minutes throughout 2011.

41. Despite this evidence, financial services firms are now expected to pay for a service formerly funded by BIS. In our view the FSA should have at the very least consulted on this issue rather than just imposing the costs on the industry. We do not agree that the financial services sector should be expected to fund the provision of debt advice in its entirety.

42. We believe it would be fairer to apportion the costs for debt advice across other sectors in addition to financial services on the basis of "polluter pays" rather than total lending. With appropriate sector level agreements the cost of collecting such levies should not be substantial.

43. In 2010 and 2011, the Money Advice Trust undertook a substantial piece of work to determine a new funding model which took account of the use of its services via National Debtline by individual firms. This model ensured that firms across all sectors were provided with a suggested funding requirement which reflected how their customers use National Debtline services, i.e. the more customers they have seeking advice about debt with that firm, the more they pay. This model was pulled together by an industry working group and is widely supported.

44. We understand that consideration was given to using consumer credit providers to pay their share but the idea was rejected because the information the Office of Fair Trading (OFT) holds is not sufficiently robust and that the OFT is unable to differentiate between large and small providers. During the work with MAT on their funding model, similar issues were encountered, but the industry worked together to provide more robust data, which allowed the model to be developed. We therefore do not see this a valid reason to require FSA levy payers with the total costs.

45. We strongly recommend that OFT carries out data cleansing work as soon as possible as a step to identifying likely fee payers in the future. Similar work should also be undertaken by the utility and telecommunication firms. This way we can ensure that all creditors support the provision of good quality debt advice.

June 2012


[1] http://www.bradtop100.co.uk/02-finance

[2] FSA Regulatory fees and levies: Rates proposals 2012/13 http://www.fsa.gov.uk/static/pubs/cp/cp12-03.pdf

[3] FSA Regulatory fees and levies: Rates proposals 2012/13 http://www.fsa.gov.uk/static/pubs/cp/cp12-03.pdf

[4] http://www.bradtop100.co.uk/0 2 -finance

[5] National Schools Partnership Report: Financial Education and the Curriculum http://www.schoolpartnershipmarketing.co.uk/2011/12/13/newsroom/financial-education-and-the-curriculum/

[6] Money Advice Trust: National Debtline http://www.insolvencynews.com/article/14028/personal/catalogue-debts-crippling-consumers

[7] National Debtline warns of increase in water debt

[7] http://www.infohub.moneyadvicetrust.org/editorial.asp?page_id=15&n_id=230

Prepared 15th June 2012