Buried in the Queen’s Speech this week was an unassuming little sentence that could transform our collective ability to deal with the ruthless financial services industry – but don’t hold your breath.
The Government signalled that it is bracing itself to take on the challenge that has defied all of its predecessors – to produce a widely accessible, State-backed source of financial advice.
The Queen said: ‘A new money guidance body would replace the Money Advice Service and be charged with identifying gaps in the financial guidance market to make sure consumers can access high-quality debt and money guidance.’
Details so far are sketchy, suggesting that the new scheme has not yet been fully fashioned. In the absence of a thoroughly worked-out road map, Her Majesty’s outline begged as many questions as it answered.
If a new body is to take over from the five-year-old Money Advice Service (MAS), it will presumably be different or the exercise is pointless.
The MAS was the first State-sponsored scheme to offer face-to-face consultations. Its inaugural chairman, Gerard Lemos, said: ‘We’re not here to sell anything and we won’t charge anyone. We are here to help people take decisions about their money and plan for a better future for themselves and their families.’
It is so hard to disagree with that mission statement that I can only hope it is adopted by its successor. In that case, we are talking about the execution.
Although it may be feasible to charge wealthier customers, they are the ones most likely to have advice already on tap. So the new body is likely to continue levying the financial industry to pay for the service.
The gaps in the market to which Her Majesty alluded are large and plentiful: pensions, insurance, savings, banking.
Andy Haldane, Bank of England chief economist, admitted this week that the UK pension system was so complicated that he failed to understand it, adding: ‘And I am moderately financially literate.’
Haldane rightly warned of ‘damaging’ consequences for consumers from pension complexity, but that is only one area of danger for the many people lacking either financial education or access to guidance. And, as the Queen implied, any old advice is not good enough – it has to be high-quality.
The trouble is that advisers’ income is usually linked to the size of the client’s pot. And, even if they are working on a fee basis, top advisers’ fees amount to a prohibitively large percentage of the average person’s assets.
This is the unpalatable circle that successive governments have attempted to square. It is not unlike the Prime Minister declaring that all restaurants and cafes have to serve food and drink up to the standard of Claridges or the Savoy Hotel. It is an ideal that we would all like to see, but there are not enough top chefs to go round, and if they are not to be paid handsomely for their efforts they would simply go elsewhere.
To take the analogy further, the beginnings of spreading high-class cuisine would have to start with excellent cookery classes in every school. In the money world, the education establishment from Whitehall to classroom bitterly resisted the introduction of financial education in schools, and even now it is a piecemeal hotchpotch that amounts to only a shadow of what it could and should be. Better than nothing, but that will in any case be felt in the market only gradually as people leave school – and even then will not preclude the ever-present need for advice.
Few commentators believe that the process can take place without personal contact.
Richard Bartlett, head of retirement at Intrinsic, an adviser, said: ‘For the majority of savers we believe face-to-face advice has become more valuable than ever before. Put simply, much of the retirement income decision process is simply too complex to be conducted optimally without a face-to-face conversation.’
However, Bartlett falls into the trap of believing that the ‘great unwashed’ can be fobbed off with a computer program.
He said: ‘Non-advised annuity broking, execution-only drawdown and robo-advice all have their place. They exist principally for those that are unwilling to pay for full advice, or believe their needs are simple enough to be handled without a comprehensive nil financial planning service.’
I profoundly disagree. Those at the bottom end of the market are in most need of detailed help.
But, while some saintly souls are willing to give up their time on a pro bono basis, there are never enough of them to meet demand.
The gap is a financial one, and it can only be met by the Government paying market rates for the best advice. If need be, that will have to be paid for by an industry levy far larger than ever before. Rebellious noises from financial firms can be quelled by reminding them that they are paying to produce a more enlightened class of customer who is more likely to return with the confidence to pay for advice out of their own pockets.
William Kay is a financial journalist who was City Editor of The Times and Money Editor of The Sunday Times
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