These are the critical issues for advancing education in financial competence.
The government is committed to improving the financial capability of consumers. This initiative was launched in 2007 when the Treasury allocated £110 million to the Financial Services Authority ('FSA', the regulator at the time) to develop pilot approaches in financial capability. This was followed by the Thoresen Review in 2008 which delivered a report on how generic financial advice should be delivered.
Ten years on, and the quality of the regulator's advice material has improved but it is a (very good) assembly of reference material rather than an approachable framework to guide individuals into the world of personal financial management. We agree with the regulator 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 accommodation of commercial interests has made a mountain out of a small hill and compromised outcomes.
The word 'consumer' is telling. It is consistently used by both the Financial Conduct Authority (the successor regulator to the FSA) and Treasury and chimes with their view of individuals as consumers of the products of the financial services industry instead of what they are: people trying to manage their money and their futures. This bias infects the government and regulatory 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 in which sellers are more knowledgeable than buyers. Like the market for financial products.
The market for advice has been infected by regulations that still allow the sophisticated selling operations of financial intermediaries to be disguised as advice, often paid for by wealth-related percentage commissions that appear small to the financially-unsophisticated. People will not pay for what they believe they are already getting for next to 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 the ignorant than it does out of the educated. 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.
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 early regulatory 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".