Finance advice made simple - or just 'idiotic'?
Proposals to offer free guidance to Britain's low earners are under way, but problems remain
Sunday 21 January 2007
"Sometimes, people just want to discuss their financial options and not buy anything," said Ed Balls.
With a surprising candour, and reflecting public distrust of the UK's commission-driven financial services industry, the Economic Secretary to the Treasury last week set the ball rolling on plans for a new type of financial advice.
The idea is to create a high-profile national network offering general help - face-to-face, online, over the phone or a mix of these - to the public on all aspects of personal finance.
The Government wants to fill what it sees as a gap in the financial advice market, allowing consumers to talk for free - about pensions or savings, say, or how best to purchase a property - with no pressure to buy a financial product.
At the moment, most advice given by banks, insurers, building societies and independent financial advisers (IFAs) is based on the sale of individual products. Advisers are largely paid through commission, raising questions about their impartiality.
The new advice network is part of the Government's grand "Financial Capability" scheme to promote the UK consumer's financial education. How the network will be set up is unclear but Otto Thoresen, chief executive of insurer Aegon UK, has been given 12 months and a budget of £2m to come up with a blueprint.
The outcome, Mr Balls said, should be "a national generic financial advice service - ensuring that every person, including those on the lowest incomes, can get quick, easy and simple access to good-quality financial advice".
This goal was broadly welcomed by many in the industry who believe that the new network will sit comfortably alongside paid-for advice, and provide a genuinely new service.
"You could get people taking along a confusing letter from an insurer or the tax department, say, and asking for an explanation," says John Ellis from the professional IFA body the Personal Finance Society.
"Many people just want the ability to go to somebody and get such queries answered. But [because of their business model], IFAs are not interested in talking to people unless they have money to spend."
Neil Shillito of SG Wealth Management, an adviser that charges upfront fees instead of relying on commission, agrees.
"The truth is," he says, "most people just need straightforward financial advice to get the basics right - like avoiding too much debt, getting some life cover and starting on saving.
"People with elaborate advice needs will be well served by fee-based advisers who take no commission but get paid directly by the client."
But others believe that the advice industry as a whole will benefit from the new service, whether or not commission is paid on the products recommended.
"Generic advice is limited by its own nature," says a spokeswoman for the Association of IFAs. "People may subsequently end up wanting product advice [from IFAs]."
David Elms of IFA Promotion, the marketing body, agrees: "If this were the way that people start getting advice, it could lead to more people getting advice from an IFA further down the line. In effect, they would graduate from the new network to an IFA."
As he begins the 12-month study, Mr Thoresen has a largely blank canvas, yet many concerns have already been raised.
One is whether there could in fact be a link - commercial or otherwise - between the generic advice network and IFAs.
A Treasury spokesman says that the plan is "not about selling products" but would not comment on any "referral" of consumers that may eventually take place.
It seems likely that part of the remit of the new network will be to give advice to employees on whether they should enrol in the proposed national pension savings scheme (NPSS), due to be introduced in 2012. At last week's launch, James Purnell, minister for Pensions Reform, stressed that the network would "be vital to help [workers] make... decisions [on whether to join and stay]".
However, the network is targeted specifically at people on lower-than-average incomes, whose entitlement to means-tested benefits could be affected if they join the NPSS. This makes the issue a potentially tricky one for financial advisers, exposing them (and the Government) to the risk of mis-selling claims, should workers be disqualified from receiving benefits on reaching retirement.
"It will be very interesting to see if the new network advisers talk about the NPSS and means-testing," says Steve Bee, head of pensions strategy at insurer Scottish Life.
"Only this week, a letter from the Financial Services Authority [FSA, the industry regulator] pointed out how advisers may 'want to consider taking into account whether a product will affect a customer's entitlement for means-tested state benefits'. This is really important."
A spokesman for the Department for Work and Pensions says only that "means-testing is an issue that we will look at as we develop", but stresses: "The final decision on whether to save will be a matter for the individual."
The FSA recently expressed concern about the quality of financial advice given to the public. Two weeks ago, it published findings from a survey of mortgage advisers, showing that only a third offered "suitable" advice to borrowers. Many failed properly to assess "affordability" before selling a home loan.
Some IFAs believe the advice-network plan is a non-starter. "It's a waste of money," warns Mark Dampier of IFA Hargreaves Lansdown. "The Government is concentrating on the wrong thing. Ordinary people need to know what questions to ask [in the first place] with their personal finances, and you only get that with education."
The best way forward, he says, is to introduce compulsory personal financial education in schools: "Every year that we don't have such lessons in schools, it's a case of another crop of 16- to 18-year-olds coming out and not knowing what an interest-only mortgage is, or an annual percentage rate. It's idiocy."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Authorities failing in hunt for 'most wanted' tax dodgers who owe HMRC £844m
Buyers beware of new-build home headaches
Child Maintenance Service to replace Child Support Agency - but is it better?
Bargain Hunter: Kit yourself out in sports gear - at a healthy discount of up to 75%
The 10 Best money-saving sites
- 1 Miley Cyrus' homeless MTV VMAs date, Jesse Helt, is wanted by the police
- 2 Arizona shooting: Gun instructor accidentally killed by nine-year-old girl with Uzi
- 3 Paul Scholes: Manchester City were so good against Liverpool I felt like turning the television off
- 4 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 5 Homer Simpson has taken the ALS ice bucket challenge because of course he has
Exclusive: We share blame for creating 'jihad generation', says Muslim strategist
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Arizona shooting: Gun instructor accidentally killed by nine-year-old girl with Uzi
- < Previous
- Next >
iJobs Money & Business
£40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...
£45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...
Negotiable: Harrington Starr: A fast growing Financial Services organisation b...
£50000 - £60000 per annum + excellent benefits: Harrington Starr: An award-win...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony