Financial ill health – is there a cure?

LABOUR PARTY CONFERENCE: 25 SEPTEMBER 2007
JOINT AXA/RESOLUTION FOUNDATION BREAKFAST MEETING
FINANCIAL ILL HEALTH: IS THERE A CURE?

AXA and the Resolution Foundation held a joint breakfast meeting at the Labour Party Conference to discuss the development of generic financial advice (GFA) and the wider financial capability agenda. Three speakers addressed the meeting:

• Kitty Ussher MP, Economic Secretary to the Treasury
• Paul Evans, Chief Executive of AXA Life
• Laurie Edmans, who spoke in an independent capacity

The meeting was chaired by the Foundation’s Chairman, Clive Cowdery. A list of attendees is at Annex A.

Clive Cowdery
Clive opened the meeting by explaining the Resolution Foundation’s role in working on issues where people on low to moderate incomes are disadvantaged in the mixed market economy. He described the financial ‘advice gap’ for people in this income group and outlined the Foundation’s work in developing proposals to enable them to
access financial advice. Using the NHS as an analogy, he set out the three key elements of a ‘financial health service’:

• Preventative work: financial education and initiatives to improve financial
• literacy
• Primary services: financial advice available at the point of need
• Crisis intervention: debt advice and other remedial services

Kitty Ussher
Kitty Ussher explained that the three main elements of her ministerial portfolio are to act as the ‘minister for the City’, represent the Treasury in discussions at a European level and develop policy on financial capability and financial exclusion. Describing her work on financial capability and financial exclusion as a key priority, she briefly
outlined the Government’s key initiatives in these areas:

• The extension of the Financial Inclusion Fund and the work of the Financial Inclusion Taskforce, which she said has a key challenge ahead in developing consensus on the next phase of the financial exclusion agenda
• The potential to go much further to promote the role of credit unions
• The Savings Gateway, on which a further announcement would be made later in the year
• The importance of identifying initiatives such as the Child Trust Fund which provide opportunities to promote financial capability
• The work of the ministerial group she chairs in developing the financial capability action plan which is due to be published later in the year
• The work of the Thoresen Review in developing a blueprint for providing GFA on a national basis, which the Government is aiming to respond to in next year’s Budget

She stressed that although a great deal of progress has been made on these issues, there is still much further to go.

Paul Evans

Paul focused on the need to harness learning about behavioural finance to deliver significant behavioural change among consumers, highlighting a number of points including:

• Providing people with information does not necessarily lead them to take action
• The evaluation of the AXA Avenue project had demonstrated the value to the consumer of receiving and acting on advice
• Inertia is the key barrier that prevents people from taking action in relation to their finances (hence the Government’s use of auto-enrolment to facilitate the take up of Personal Accounts)
• GFA should be preventative in nature and must lead people to take action

Paul also highlighted AXA’s current research to provide further evidence as to the key factors that motivate people to take action in relation to their personal finances (the first phase of this research was published that day).

Laurie Edmans
Laurie drew on his personal experience to stress the value of receiving and acting on effective financial advice. He then used his experience in the financial services industry to highlight the benefits that would be delivered by providing GFA on a national basis. These included:

• Commercial benefits to the financial services industry, particularly in terms of its distribution model; for example, the life industry currently spends £5 billion on commission but generates very little new business despite this investment
• The value to the consumer of having ‘somewhere to go’ to discuss their finances and to be able to do this at the point in time they want to have this discussion
• The opportunity to build a more trusting relationship between consumers and the industry by providing people with straightforward guidance in a non-sales orientated environment

He also emphasised the progress that has been made on GFA and financial capability in the last year, and the strong leadership role played by the Government in this.
Discussion
A number of points were made in the discussion that followed. These centred largely on:

• How a national service providing GFA should be funded
• How GFA should be delivered
• How to build trust between consumers and the industry and the implications of this for the governance of a national GFA service

Funding

There was strong support for the principle that funding should be shared by the Government and the financial services industry, and a recognition that this would be in the long term interests of the industry, although some notes of caution were sounded about how such an approach should be taken forward:

• Kitty Ussher confirmed that her position would be to suggest to colleagues that the Government should match the industry’s funding contribution; she encouraged the industry to engage in constructive discussions about this (for example, discussions are currently taking place with the ABI)
• A number of participants stressed the need to adopt a partnership-based approach to the funding question, with a 50/50 split supported by several voices
• Given that the industry would not receive brand recognition from supporting generic financial advice, it was suggested that engaging some industry players could be a challenge
• Industry voices stressed that funding for GFA should not come at theexpense of other important industry-sponsored initiatives and emphasised the need to develop a clear definition of the service before funding could be committed
• The need to link generic financial advice with the wider financial capability agenda was also stressed, particularly in terms of ensuring linkage between the funding question and the existing levy on the industry to fund financial capability initiatives; the aim should be to deliver an ‘overall settlement’
• It was also suggested that it would not just be the financial services industry that would benefit from the provision of GFA; other sectors such as the utilities industry would also gain

Delivery
There was general agreement that GFA should not be a crisis-driven service and thattranslating need into demand would therefore be critical given that most people do not realise they have financial problems until they reach crisis point:

• The point that information alone would not be enough was reinforced by several participants, as was the need to ensure that advice and good intentions on the part of the individual leads to action
• It was suggested that the extent to which GFA is likely to stimulate demand for financial products and change consumer behaviour would influence the industry’s appetite to fund it (it was also pointed out that it would take time for behavioural change to take place)
• The range of income groups now likely to benefit from generic financial advice, including those on lower incomes, was welcomed
• The importance of finding creative ways to promote and deliver GFA was stressed, for example by using trusted intermediaries (such as midwives) and the workplace (although it was also pointed out that the FSA had found it difficult to engage some employers in its work-based seminar programme)
• The need to co-ordinate the outcome of the Thoresen Review with the Retail Distribution Review, and to develop clear measures of success, were also raised

Trust and governance

The need to ensure trust and therefore for GFA to be managed independently was emphasised by several participants:

• It was pointed out that although the financial services industry may not be trusted at an institutional level, people often have high levels of trust in the industry staff and representatives they come into contact with as individuals
• It was stressed that GFA should not be delivered by a ‘monolith’ structure; it will be important to work with existing services
• The experience of the Retirement Commission in New Zealand was used to illustrate the importance of having an independent brand and basing advice on people’s wider financial circumstances, rather than just their retirement needs (it was also acknowledged that the UK environment is more complex than New Zealand, especially in relation to means-testing)
• It was also suggested that the growth of the Internet and developments such as Facebook would make it more difficult for the industry to manage its reputation in future; GFA would help by signposting need, managing consumer expectations and bridging the gap between consumers and the industry

Conclusion
Overall, the meeting was very positive, suggesting real momentum behind the development of GFA and the financial capability agenda. The support of the different constituencies assembled was seen as an opportunity to seize the moment and deliver a step change in financial capability. Ensuring that initiatives are effectively co-ordinated, that a constructive approach is adopted to discussions about funding and that an independent governance structure is put in place were identified as key factors in achieving this.

ANNEX A: ATTENDEES 

Speakers
Kitty Ussher MP (Economic Secretary to the Treasury)
Clive Cowdery (Resolution Foundation)
Paul Evans (AXA)
Laurie Edmans (independent consultant)

Attendees
James Allen (Cicero)
Helen Banks (BBA)
Deborah Briers (AXA)
Jonathan Chapman (FSA)
Niki Cleal (Pensions Policy Institute)
Ian Costain (AXA)
Richard Cox (Norwich Union)
Gareth Evans (Royal London)
Christine Farnish (Barclays)
Phil Hall (ifs School of Finance)
Mona Patel (Investment Management Association)
Brian Pomeroy (Financial Inclusion Taskforce)
Laurence Smith (Chartered Insurance Institute)
Patrick South (Resolution Foundation)
Mark Stockwell (AEGON UK)
Jeremy Swan (Cicero)
Doug Taylor (Which?)
Francesca Templeman (ABI)
Anthony Thomson (Financial Services Forum)
Jon Trigg (A4e)
Wendy van den Hende (Personal Finance Education Group)
Jackie Wells (independent consultant)