Advice gap could widen unless guidance body is replaced
IN all the furore over George Osborne’s Budget, one little-noticed casualty was the Money Advice Service, which is to be scrapped after swallowing £400 million. So what will replace it?
The Chancellor revealed MAS will be axed in favour of a new body for “money guidance”, as yet unknown.
T he Money Ad v ic e Service was launched in Scotland in June 2011 as a website offering a 10-minute online health check, producing a “personal action plan” to help people stay on top of their money.
Funded by an industry levy, the MAS was independent. But it ran into trouble with independent financial advisers, who had spent years being told by the FSA they were the only people allowed to brand their service as “independent financial advice”.
In 2012 Gillian Guy, chief executive of Citizens Advice, told MPs MAS spent £19m a year purely on marketing – the same as the CAB’s entire budget for debt advice – and “to no great effect”.
It then emerged £350,000a-year chief executive Tony Hobman had failed to tell the committee about an internal report that concluded the MAS’s online health check had “no impact” on helping people to manage their finances better and might even have a ‘negative effect’.
MAS’s budget, meanwhile, was doubled to £86m – but Mr Hobman resigned, to be replaced by a new chief executive Caroline Rookes on £140,000 a year.
Later that year MAS admitted generating less than 284,000 financial action plans for website visitors in six months, against a full year target of one million.
One IFA blogged: “Only 72,000 actually asked for help, so that’s £6,388 each, sounds pretty expensive.”
Following a review, a Treasury Committee report two years ago lambasted the service as not fit for purpose.
Ms Rookes, however, said she had “changed the direction of the organisation to focus much more on working with partners to help customers”.
Ironically that looks like the kind of service the Government is now talking about creating as a replacement. MAS had scrapped expensive advertising and website development, and had begun focusing on financial capability and education.
Ms Guy says: “Getting effective financial guidance to people early is key to improving household finances and economic security.” She says people need to be able to get help at different stages of life, not just in a crisis.
The Treasury, meanwhile, intends to replace the Pensions Advisory Service and Pension Wise with one new guidance body for retirement advice.
The Budget did introduce two helpful changes. One will see the tax break for employers providing financial advice in the workplace rise from £150 to £500 per employee.
The Chartered Institute of Securities and Investments says: “This is much more realistic and an effective acknowledgement that good advice is worth paying for.”
The other will enable people approaching retirement to borrow £500 tax-free from their pension before they get it, to spend on advice.
However, Anthony Thomas, of the Low Incomes Tax Reform Group, says: “These provisions are helpful, but for many people the cost of the advice is likely to be significantly more than this. We are also concerned the Government intends to consult on providing a simple definition of “financial advice” for this purpose.
“While we are very much in favour of simplicity, we would be very concerned if this enabled people who are not properly qualified to provide advice.”
Mr Thomas said that since last April, when the pension freedoms came in, Pension Wise has offered free guidance, which was not the same as advice.
“We have suggested a charity might be established to provide free financial advice to those with modest pension savings. Much more education is required in this area.”
A survey by Citizens Advice last November found a financial adviser would charge about £1,500 to advise on a pension pot worth £61,000. Yet only one person in 50 said they would be willing to pay more than £1,000. One in three was unwilling to pay anything.
Which? analysed the websites of 500 IFA firms and found more than two-thirds did not publish their fees and charges online, giving customers no advance warning of what they might pay. Director Richard Lloyd said: “We need IFAs to be much more open about charges or the regulator should step in and change the rules.”
But Patrick Connolly, financial planner at independent advisers Chase de Vere, noted: “What many people won’t realise is that most of the larger and better known advice firms do not give independent financial advice.”
He says of 17 leading brands, only his firm and Brooks Macdonald offer purely independent advice.
The Treasury and the Financial Conduct Authority are currently conducting a review of “robo-advice” – automatic decision-tree guidance on websites – to see how far it can safely fill what appears to be a widening advice gap.
Getting effective financial guidance to people early is key to improving household finances and economic security.