Generic Advice and the FSA
I’ve been thinking through where we are exactly now that the Thoresen Review on generic advice has come and gone1. That review has been likened to a roadmap by many commentators and officials as it has set a number of other initiatives in train.
The next step in the journey is to be a ‘Pathfinder Project’ to see how a national money guidance service can be established. The good news about this two-year pilot project is that it will be lead by the Financial Services Authority (the FSA). The FSA already has much experience in this area and has already run a number of initiatives, such as its ‘Parents’ Guide to Money’ 2and its ‘Moneymadeclear’3 website to help spread financial awareness.
The Pathfinder Project will be taking forward this idea of ‘On My Side’ impartial financial information and guidance that the Thoresen Review came up with as it recognises that many consumers are ill-equipped to make informed decisions about their finances and can fall victim to the consequences of those poor choices.
The project is not just about pensions, of course, but as far as pensions are concerned, and the proposed auto-enrolment of millions into Personal Accounts in 2012, it is clearly important that people fully appreciate what’s what so that they can avoid making poor choices. And it’s not just financial products that they need to know about either; indeed that’s probably the easy bit. It’s the real-life interaction with the wider financial environment that people need help to understand. That’s why I’m pleased to see that it is the FSA that will be leading the Pathfinder Project because we already know, for example, exactly what the FSA thinks about pensions being distributed to people who could stand to lose state entitlements as a result of saving. The following is an extract from the FSA’s Newsletter to financial advisers from back in January 20074:
Means tested state benefits
Factors that impact on the advice you give will vary from product to product and customer to customer. However, one factor that you may want to consider taking into account is whether a product will affect a customer’s entitlement for means tested state benefits. Principle 9 imposes a broad requirement for a firm to take reasonable care to ensure the suitability of its advice.
And principle 7 requires a firm to pay due regard to the information needs of its clients. You may wish to consider the impact of your financial advice on means tested benefits in communicating with some of your customers.
Among the failings we have seen in this area are a firm that recommended a low premium pension to someone in their late 50’s with no previous pension provision. Another firm recommended a lifetime mortgage to a customer without considering the impact on the pension credit they were receiving.
Among the good practices we have seen are a firm that ensures all customers who are in receipt of child and family tax credits are aware of the different implications of achieving capital growth with their savings and investments.
You and your customers may want to look at the information available on the internet on websites such as DWP and entitledto.com to understand the available benefits and tax credits.
Obviously that was aimed at financial advisers, but it just seems unlikely to me that similar principles will now not find their way into the ‘On My Side’ financial guidance that the UK’s first national money guidance service will deliver to, among others, the many millions about to be auto-enrolled into voluntary saving in 2012.
To those advisers engaged in the daily and difficult business of advising people on pension issues this should, I think, be good news.
11 March 2008
1. HM Treasury website, Thoresen Review of Generic Financial Advice:Final Report and press statement, 3 March 2008.
2. FSA website, Free Tools.
3. FSA moneymadeclear website.
4. FSA website, Publications, Newsletters, January 2007.
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