Living standards Foundation welcomes code of practice for comparison websites but urges best practice 16 July 2009 NEWS RELEASE For immediate use: THURSDAY 16 JULY 2009 FOUNDATION WELCOMES CODE OF PRACTICE FOR COMPARISON WEBSITES BUT URGES BEST PRACTICE The Comparison Consortium code of practice announced today is a first important step towards improving the conduct of comparison websites. However, the Resolution Foundation also believes that this first step must be built on to ensure comparison websites are as transparent and accessible as possible. The Resolution Foundation called for a voluntary code of practice for comparison websites in its 2007 report[i] to improve low earners’[ii] ability to compare financial products online. The code released today covers some of the areas that the Foundation said a code should, such as the need for transparency, the suitability of information for each customer and care to manage conflict of relationships. However, there are still some limitations that the Foundation would like to see addressed: It is important that any code of conduct is compiled and signed up to by all comparison websites The Foundation would also be keen to see how this code will be policed as some of the standards are hard to measure and might be open to interpretation. The Foundation would suggest that a set of guidelines against which to assess adherence to elements of the code might be a helpful next step. Sue Regan, Chief Executive of the Resolution Foundation said: “With the roll out of a national money guidance service next year, there is likely to be even more consumers turning to comparison websites to purchase financial products. This code of practice is a positive first move towards consumers having all the information they need when they make a financial purchase. It is a welcome first step in self-regulation of the comparison website sector.” The Foundation’s research highlighted the important role comparison sites play in helping consumers make informed financial decisions. However, the research also showed that many sites fail to explain the commercial relationships they have with product providers. This risked misleading consumers who can easily mistake promotional features such as ‘best buys’ and ‘editor’s choices’ as being the best value products on the market. Other weaknesses among the sites reviewed for the research include: A failure to explain technical terms, abbreviations and financial jargon Unnecessarily requiring personal contact details to be provided to compare mortgages and loans Failing to provide personalised information in relation to credit cards and savings products The research also highlighted areas of good practice. For example, many sites scored highly in terms of user friendliness, following consumer testing conducted by Opinion Leader to inform the research.[iii] With comparison sites coming under fire in some quarters[iv], the research also found that previous criticisms of the sector, such as the damage caused to people’s credit ratings by encouraging them to make inappropriate loan applications, have been addressed.[v] The Foundation therefore called for a voluntary code of practice to build on the strengths displayed by the sites and address the weaknesses identified by the research. This would: Improve standards and provide reassurance for consumers about the transparency of comparison sites, helping them make informed financial decisions Promote a healthy comparison site market without the need for new regulation Support Government policies to improve ‘financial capability’[vi] and compliment the introduction of a national service providing generic financial advice[vii] Low earners & financial advice The Foundation has been working on the issue of financial advice since it discovered an ‘advice gap’ for 9.1 million low earners of working age and a further 4.4 million low earners in retirement[viii]. The Foundation developed proposals for a national generic financial advice service. This work led to HM Treasury’s Thoresen Review which recommended in March 2008 that a Money Guidance service be set up. The Treasury then announced the pathfinders of ‘MoneyMadeClear’ which were launched earlier this year.[ix] The Budget announced that this service would be rolled out nationally from 2010 and legislation is expected in the autumn. /Ends For further information please contact Cara Brown on 020 7731 9143 / 07957 536758 All the Foundation’s research, reports, briefings, seminar notes are available on our website www.resolutionfoundation.org [i]Compare and contrast: How the UK comparison website market is serving financial consumers The research assessed eight of the most popular sites comparing financial products, as well as the Financial Services Authority’s comparison tables which, unlike the other sites, do not seek to generate revenue: · www.moneysupermarket.com · www.fool.co.uk · www.uswitch.com · www.moneynet.co.uk · www.moneyexpert.com · www.moneyextra.com · www.moneyfacts.co.uk · www.kelkoo.co.uk · www.fsa.gov.uk/tables [ii] At its broadest, we define the low earner group as including all those with below-median income (from all sources) who are not dependent on state support. For the purposes of analysis there are a number of different ways of capturing this group and this note uses a variety of methods, depending on the data available in the underlying sources. At its simplest, we consider the group to be made up of households in income deciles 3, 4 and 5: that is, with gross annual income between £11,650 and £27,150. Around 7.6 million households fall into this category in the UK, equivalent to around 13.4 million adults. We define two other income groups in relation to low earners: households with above-median incomes (income deciles 6-10) are considered high earners, while those with below £11,650 income (deciles 1 and 2) are considered benefit-dependent. This definition inevitably excludes some low earners (those in income deciles 1 & 2 who are not benefit-dependent and those living in high earner households who are individual low earners) and includes some benefit-dependent individuals. However, it provides a reasonable picture of the position faced by the majority of low earners. [iii] To inform the research, the Foundation commissioned Opinion Leader to carry out user testing among people on low to moderate incomes. Opinion Leader hosted two focus groups, one of which comprised people with strong IT skills and the other people with lower levels of computer literacy. [iv] For example, Direct Line, who do not allow their products to be included in comparison tables, have launched a high profile advertising campaign attacking comparison sites as ‘middlemen’. [v] This criticism was made by Professor Merlin Stone in Money aggregators: Paradise or purgatory for buyers and providers of financial services , a report for MoneyExpert.com in 2006. [vi] In January this year, the Government published a strategy document outlining its long term plans for improving the nation’s financial capability by, for example, increasing financial education in schools. This will be followed by an action plan which is due to be published before the end of 2007. [vii] Generic financial advice is advice and guidance which helps people understand their financial needs and make appropriate financial decisions in light of their individual circumstances, but does not recommend specific financial products or providers. [viii] See Closing the advice gap: providing financial advice to people on low incomes; A national dividend: The economic impact of financial advice; and The advice gain: The impact of generic financial advice on the financial services industry all of which can be downloaded from the Foundation’s website. [ix] The Money Made Clear Service is available online http://www.moneymadeclear.fsa.gov.uk/ or by calling 0300 500 5000, Mon-Fri 8am-8pm, Sat 10am-6pm, Sun 11am-5pm. The face-to-face service will only be piloted in the North-East and North-West. [1]Compare and contrast: How the UK comparison website market is serving financial consumers The research assessed eight of the most popular sites comparing financial products, as well as the Financial Services Authority’s comparison tables which, unlike the other sites, do not seek to generate revenue: · www.moneysupermarket.com · www.fool.co.uk · www.uswitch.com · www.moneynet.co.uk · www.moneyexpert.com · www.moneyextra.com · www.moneyfacts.co.uk · www.kelkoo.co.uk · www.fsa.gov.uk/tables [1] At its broadest, we define the low earner group as including all those with below-median income (from all sources) who are not dependent on state support. For the purposes of analysis there are a number of different ways of capturing this group and this note uses a variety of methods, depending on the data available in the underlying sources. At its simplest, we consider the group to be made up of households in income deciles 3, 4 and 5: that is, with gross annual income between £11,650 and £27,150. Around 7.6 million households fall into this category in the UK, equivalent to around 13.4 million adults. We define two other income groups in relation to low earners: households with above-median incomes (income deciles 6-10) are considered high earners, while those with below £11,650 income (deciles 1 and 2) are considered benefit-dependent. This definition inevitably excludes some low earners (those in income deciles 1 & 2 who are not benefit-dependent and those living in high earner households who are individual low earners) and includes some benefit-dependent individuals. However, it provides a reasonable picture of the position faced by the majority of low earners. [1] To inform the research, the Foundation commissioned Opinion Leader to carry out user testing among people on low to moderate incomes. Opinion Leader hosted two focus groups, one of which comprised people with strong IT skills and the other people with lower levels of computer literacy. [1] For example, Direct Line, who do not allow their products to be included in comparison tables, have launched a high profile advertising campaign attacking comparison sites as ‘middlemen’. [1] This criticism was made by Professor Merlin Stone in Money aggregators: Paradise or purgatory for buyers and providers of financial services , a report for MoneyExpert.com in 2006. [1] In January this year, the Government published a strategy document outlining its long term plans for improving the nation’s financial capability by, for example, increasing financial education in schools. This will be followed by an action plan which is due to be published before the end of 2007. [1] Generic financial advice is advice and guidance which helps people understand their financial needs and make appropriate financial decisions in light of their individual circumstances, but does not recommend specific financial products or providers. [1] See Closing the advice gap: providing financial advice to people on low incomes; A national dividend: The economic impact of financial advice; and The advice gain: The impact of generic financial advice on the financial services industry all of which can be downloaded from the Foundation’s website. [1] The Money Made Clear Service is available online http://www.moneymadeclear.fsa.gov.uk/ or by calling 0300 500 5000, Mon-Fri 8am-8pm, Sat 10am-6pm, Sun 11am-5pm. The face-to-face service will only be piloted in the North-East and North-West.
