Money Advice Service inquiry

Written evidence submitted by Otto Thoresen, Director General, Association of British Insurers

The views expressed in this response are my own personal perspectives based on the experiences and understanding I built up while producing the Thoresen Review of Generic Financial Advice (http://www.hm-treasury.gov.uk/d/thoresenreview_final.pdf) published in March 2008.

The views of the Personal Finance Education Group (pfeg), the financial education charity of which I am chair, and the Association of British Insurers, of which I am Director General, will be separately submitted by those organisations.

From my experiences of talking with the MAS team, I believe that the right steps are substantially being taken to establish the foundations of a preventative generic financial advice service.

The Review described the aim of the MAS service as being "to change the way people engage with, and manage, their financial affairs. It (should) be a key tool to improve levels of financial capability in the UK."

In my review we therefore identified 5 key principles which we believed should be at the core of the service:

§ 'on your side’: impartial from Government and the industry

§ supportive: guiding individuals to help them make better decisions

§ preventative: not a service designed for those in crisis

§ a universal service, available to all

§ sales free: but able to signpost people to the commercial sector where that is appropriate.

I believe that the statutory objectives cover this at a high level, but if they are to be achieved it is critical that the principles themselves are also observed.

The service is aiming to change behaviour. This will take time (years not months). Therefore stakeholders must be willing to exercise patience in expecting progress on those things which can be measured.

Looking ahead, if we maintain the development of MAS, the potential is there to create a population who:

§ Are better able to manage their day to day finances

§ Can engage with the financial services industry on a more equal footing

§ Will be able to identify their basic needs in terms of financial products

§ And make sense of what is happening around them.

The pension reforms, the future changes to the welfare system, the challenges of continued austerity with the added pressures of inflation and higher interest rates are all reasons why UK needs a strongly performing MAS.

The efforts of the last 3 years have given us a start in achieving that, but improvements are needed if its full potential is to be realised.

To what extent is the MAS meeting its core statutory objectives?

1. As I have already said in my covering letter, the views expressed in this document are my own, based on my experiences in producing the Thoresen Review

(http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury.gov.uk/independent_reviews/thoresen_review/thoresenreview_index.cfm)

Pfeg (the Personal Finance Education Group, the charity of which I am Chair) and the Association of British Insurers (who I lead as DG) will submit their own responses.

2. After the Pathfinder phase of the recommended "next steps" of the Thoresen Review and the creation of CFEB the challenge for MAS was to establish the foundations on which a preventative service could be delivered.

3. From my experiences of talking with the MAS team, I believe that the right steps are substantially being taken to establish those foundations.

4. I believe that the creation of the 'health check', a new element to the service provided by MAS beyond what was discussed in the review, has perhaps dominated activity with the result that other elements of the programme have received less attention, and I believe that communication and engagement with the many stakeholders in the service has at times been disappointing. I also believe that more should have been done to maintain and develop the important work done by the FSA and Government from the period when there was an actively supported "National Strategy" for financial capability.

5. The birth of MAS as part of FSA, and the subsequent removal of the organisation from within FSA as part of the preparation for 'twin peaks', and the significant change of staffing within the organisation has created uncertainty amongst stakeholders and financial sponsors about the decision making process within MAS and the direction of travel.

6. The addition of elements of debt advice to the core generic advice/financial capability role has added a crisis service to what was originally intended to be a preventative service. My comments here will focus on the original generic advice role of MAS.

7. On the generic advice role, particularly over recent months I am convinced that the service is developing on the right lines.

8. This is a complex area, where past activity has tended to be delivered on a project by project basis, with no capability to respond in a timely manner to the changes in the economic environment, the changes in the welfare system and pensions policy and to engage with consumers on a regular basis to help prevent bad financial outcomes for them and their families.

The current financial environment makes such a capability more needed than ever.

The MAS offers us the opportunity to create that capability on a sustainable and cost effective basis, but only if the groundwork is laid with some care.

I would support the team at MAS in their current efforts to achieve this.

Are these the right objectives for MAS to have?

9. The Review described the aim of the MAS service as being "to change the way people engage with, and manage, their financial affairs. It (should) be a key tool to improve levels of financial capability in the UK. "

10. In my review we therefore identified 5 key principles which we believed should be at the core of the service:

10.1 'on your side’: impartial from Government and the industry

10.2 supportive: guiding individuals to help them make better decisions

10.3 preventative: not a service designed for those in crisis

10.4 a universal service, available to all

10.5 sales free: but able to signpost people to the commercial sector where that is appropriate.

I believe that the statutory objectives cover this at a high level, but if they are to be achieved it is critical that the principles themselves are also observed.

11. However, the UK of 2012 is very different from the world of 2007/2008 when we formulated the Review. The impact of the financial crisis is making an improved ability to manage your money a more important life skill now than it was then. We need to see the service become more proactive in alerting families to the risks ahead, to the things they can do to improve their financial robustness, and to be able to avoid the mistakes which make an already tight budget break under the strain of high credit costs, unnecessary administration fees and penalties in financial services and to ensure they have adequate financial protection in the event of unexpected events.

12. The financial crisis has also increased financial pressure on the organisations funding MAS, and this needs to be considered as budgets are discussed and set by MAS.

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

13. The ABI will comment on this in their submission.

14. I have two observations to make.

15. Firstly, the appropriate level of resource as a budget for MAS is something which should be discussed before the budget is set with those who will be asked to pay for it. The Thoresen Review suggested a 50/50 split of funding between government and the industry (I will discuss this further in a later question). However, the change in funding approach means there needs to be an enhanced level of scrutiny by industry over budget plans before these become firmly committed. Greater consultation is required.

16. Secondly it is too early to make a call on how effective the current spending plans are. At this stage what we do need to see is increased visibility on what the expenditure is, and why, and what the performance metrics of the organisation are.

17. We need to know what the team believe they're trying to deliver, discuss that fully, then track progress against the identified 'key result areas'.

18. The Board of MAS has a key role to play in providing this oversight.

19. I will discuss the question of accountability and assessment further in response to later questions.

20. As I said in my answer to Q1, I believe the emphasis on the 'health check" led to a reduction in focus on some other important aspects of the service in the early stages of MAS development (for example the use of "trusted intermediaries" for customer engagement, workplace delivery and financial education). Also the significant changes to staffing, both in terms of staff numbers but also the introduction of a new leadership team, must have had an impact on the early effectiveness and progress of MAS.

21. I believe that MAS is putting this period of change behind them, and now that the health check is substantially in place, they are far clearer in what their delivery plans should be and that these are more complete in their coverage.

22. I have also noticed a significant improvement in communication and engagement with me as a stakeholder (both as Chair of pfeg and DG of ABI).

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

23. Again the ABI will cover this in its submission.

24. The MAS Board is critical to ensuring MAS is accountable in its day to day operations.

In addition, given the use of the FSA levy the FSA Board has a role in approving levels of expenditure and the Business Plan for MAS. Strengthening the MAS Board, in particular with skills draw from within the current financial services industry, as well as individuals with a track record in Financial Capability, and in dealing with the use of social media would ensure that the right level of constructive challenge could be brought to bear on management.

25. The visibility of both these elements of oversight and governance is currently too low, in my opinion.

26. In addition, there exist two "fora" for engagement with MAS, one for customers and one for the industry trade bodies who represent those firms who fund MAS. The industry forum was a welcome development. However in its early stages it was not particularly effective in achieving good constructive open engagement with the industry. The more recent meetings however have become more useful and more positive which is extremely encouraging.

I have no experience of the customer forum's operation.

27. The Financial Services Consumer Panel, and the Practitioners Panel, may have a role to play also.

28. Now that we can see the development of a clearer delivery path for MAS, and clearer performance objectives and measurable indicators, I would encourage management to publish a regular performance report to allow interested parties to track progress.

29. The service is aiming to change behaviour. This will take time (years not months). Therefore stakeholders must be willing to exercise patience in expecting progress on those things which can be measured.

30. The FSA established a 'financial capability benchmark' study (The FSA Baseline Study) which allowed us to evaluate where the UK population was placed in financial capability terms. This is now very out of date, and should be re-established and maintained as a basis for focusing effort and measuring long term progress.

31. Likewise the "National Strategy for Financial Capability" needs refreshed to allow the impact of the 2008 financial crisis to be adequately reflected in the work of MAS. MAS is delivering in a very different economic environment than we envisaged when we carried out the Review in 2008/2009.

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

32. The Review identified a gap for a truly "preventative" service in the area of generic advice and better financial capability, which MAS has been created to fill. I still believe today that we were correct in our analysis. And I also believe that MAS has the potential to fill that gap.

33. There are many excellent service providers operating in the space around the 'preventative gap' which MAS is designed to fill. Specialist organisations like TPAS and TaxAid, providers like CAB and CCCS offer outstanding support to citizens mostly to deal with crisis or unexpected events and usually delivered by volunteers. Without them there would be millions of people without the help they need to get back in control of their financial and legal affairs. The key is to ensure that there is as little overlap between MAS and these services as possible, that resources are available to all to be able to continue to deliver at the level needed to at least meet a reasonable level of the growing demand.

34. Management of hand offs between MAS and these service providers is the other key element of a successful and effective 'plug' for the preventative service gap. I believe MAS management understand this, but I am not convinced this is working as well as it could. To some extent this can be understood given the very broad agenda that MAS has had to deal with in relatively short time.

35. A related consequence of the poor engagement and communication with stakeholders, and the lack of visibility of progress and clarity of service strategy is that potential funding sources for voluntary service providers are being redirected because funders believe that MAS is delivering in the voluntary space (eg CCCS, pfeg, CAB).

36. Much of this risk can be mitigated by addressing as a priority the communication and transparency issues discussed elsewhere in this response.

Access to MAS and its coverage.

a) is MAS reaching its target audience?

37. This is difficult to comment on given the early stage of development of MAS and the lack of detailed information on progress to date.

38. At an early stage in the progress of MAS I was concerned that the focus on web, brand building, and generating traffic to the "health check" was at the expense of delivery of guidance through "trusted intermediaries" and the use of social networks.

39. More recent discussions with MAS suggest that either there is a rebalancing, or the emphasis in discussions is reflecting more accurately what is going on in practice. Either way it is clear that midwives, parents, schools, the workplace and others are seen as a vital part of the engagement strategy.

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

40. I have no evidence of this, but it might be felt that the emphasis on web based services up to now may be excluding some potential beneficiaries of the service who do not have internet access or are uncomfortable with technology. This issue is one of balancing cost of service delivery with diversity of delivery methods. Where resource is constrained there will inevitably be a need to carefully utilise high cost face to face delivery methods, with the inevitable result that demand will outstrip supply. I believe that MAS is aware of this and attempting to get the balance right.

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

41. The Review was strongly of the opinion that almost everyone is vulnerable to the impact of low financial capability. An unexpected event can create challenges for individuals and families which move them into a decline which may result in crisis.

42. Therefore the service must be a "universal" service, accessible by all.

43. The expectation would be that those with a higher level of "personal financial capability" will be able to engage through the lower cost web and telephone based service channels.

44. The question, which I am not in a position to answer, is whether the less capable, more difficult to serve (and therefore more expensive) are having an appropriate level of resource allocated against them.

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

45. PFEG (the Personal Finance Education Group, which I Chair) will respond on their own account, so I will be brief.

46. The service needs to engage at all life stages, including primary, secondary and further education establishments so I believe strongly that it should have a greater role in financial education at all levels.

47. But we also need to look again at the role of financial education in the curriculum.

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

48. The Review's recommendation that funding should be 50/50 between Government and the industry was based on an argument that this would support the impartiality of the service, and reflect the likely benefits which would be generated.

49. I still believe that argument holds. Potentially, with developments in pensions and welfare systems ahead, the level of government policy related activity of the service will grow. This needs to be monitored, as does the potential for utility firms and others to benefit from service activity.

50. In addition, financial firms regulated by the OFT should be brought into the funding "universe" (on the principle of "polluters pay".)

51. In the meantime, a strengthening of representation of FSA regulated firms on the MAS board, and continued development of the 'industry forum' would be advisable.

The potential of a successful MAS.

52. Looking ahead, if we maintain the development of MAS, the potential is there to create a population who:

- Are better able to manage their day to day finances

- Can engage with the financial services industry on a more equal footing

- Will be able to identify their basic needs in terms of financial products

- And make sense of what is happening around them.

The pension reforms, the future changes to the welfare system, the challenges of continued austerity with the added pressures of inflation and higher interest rates are all reasons why UK needs a strongly performing MAS.

The efforts of the last 3 years have given us a start in achieving that, but improvements are needed if its full potential is to be realised. 

June 2012

Prepared 18th June 2012