|These are the critical issues for
advancing education in financial competence.
The government is committed to improving the financial capability
of consumers. In 2007 the Treasury allocated £110 million
to the Financial Services Authority to develop pilot approaches
capability. Separately, the Thoresen
Review in 2008 delivered a report on how generic financial advice
should be delivered.
We agree with the FSA that "a sound and accessible
basic financial education for less sophisticated consumers is essential
if the consumer is to take more personal responsibility ".
But UKSA believes that conflicting objectives, political compromise
and accomodation of commercial interests is making a mountain out
of a small hill.
The word 'consumer' is a giveaway. It is consistently
used by both the FSA and Treasury in discussion and policy documents
- and in legislation - and chimes with their view of individuals
as consumers of the products of the financial services industry
instead of as people trying to manage their money and their futures.
This bias infects their view of financial education.
Basic financial education is not difficult provided
it is rooted in sound principles. This website is offered as a practical
demonstration of that assertion and a theoretical framework to support
the delivery of tailored modules to different target groups.
UKSA also wishes to create a vibrant commercial advice market. The
availability of suitable advice is critical:-
- It is a necessary condition for developing
a savings environment of the type envisaged by government.
- It is a necessary safeguard in any market,
like the market for financial products, in which sellers are more
knowledgeable than buyers.
The market for advice has been stunted by regulations
that allow the sophisticated selling operations of Independent Financial
Advisers to be disguised as advice. Consumers will not pay for what
they believe they are already getting for nothing. Breaking this
model is a necessary condition for creating an educated consumer.
Control of the syllabus of any new education service should not
lie in the hands of the financial services industry. It is an unfortunate
fact that the industry makes more money out of ignorant consumers
than it does out of educated consumers. The more enlightened parts
of the industry will recognise its obligations to society over and
above the drive to make money. The less enlightened ones will not.
It is symptomatic that the FSA's
own attempt at basic education, MoneyMadeClear,
does not explain the importance of product costs, the distortion
of sound decision-making by individual behavioural biases or the
effect of commission on the nature of advice from IFAs
- all indispensible concepts for long term savers. But not, of course,
conducive to selling more product.
The more that government seeks market-driven solutions
to social problems, the more important it is that the foxes are
not allowed to design the hen-coop.
We also believe that a sound and freely available intellectual framework
for investment advice offers opportunities for both simplifying
regulation and making it more effective. For example, it could be
made a condition of all product selling by IFAs that consumers are
made aware of the appropriate generic advice tailored to the particular
product being sold (and given access to it online in IFAs' offices?).
That would allow a more flexible response to advisory issues and
make much detailed regulation unnecessary.
As an example of the low-hanging fruit available:
various surveys have shown that 20-40% of all users of IFAs with
consumer debts are not advised to repay them in preference to buying
a savings product. This mis-selling could be prevented if IFAs were
required to direct customers to read a couple of sentences on debt
management, from a source in which they have confidence, before
proceeding with any product purchase.
Any compromise on the basic principles will erode the whole structure.
Bad advice and bad financial products are like water: any crack
in the dam and they'll find a way in.
From an FSA discussion paper: "....... we would rather
achieve [effective consumer protection] by tackling the root causes
of the problems and removing unnecessary barriers that prevent firms
from operating in a way that is both commercially viable and results
in the fair treatment of their customers".