financial capability: developing the role of generic

FinancialCapability:developing

the role of genericfinancial

advice

FinancialCapability:developing

the role of genericfinancial

advice

We welcome your comments on the issues raised in this paper assoon as possible and, in any event, by 31 October 2005.

Contact the financial capability team via our website:www.fsa.gov.uk/financial_capabilityor by email: [email protected]

Or write to us at:

Financial Capability TeamThe Financial Services Authority25 The North ColonnadeCanary WharfLondon E14 5HS

Members of the Generic Advice Working GroupAnna Bradley, Financial Services Authority, Chair

Richard Cook, HM Treasury

Chris Cummings, Association of Independent Financial Advisers

Laurie Edmans, Aegon UK

Rachel Fry, Money Advice Trust

Dianne Hayter

Chris Kenny, Association of British Insurers

David Lewis, HSBC

Nick Lord, Citizens Advice

Paula McCuskin, Department for Work and Pensions

Phil Northey, Abbey

Sandy Scott, Chartered Insurance Institute

Doug Taylor, Which?

Tim Weber, BBC News Interactive

Published by the FSA with input from the Working Group

1Financial Capability: developing the role of generic financial advice – August 2005

Foreword

The National Strategyfor Financial Capabilityis about helping peopleto acquire knowledgeand skills which enablethem to make capableand confident financialdecisions. Financialadvice is a keycomponent of thatstrategy: from the wise

words of our parents to the considered professionalview of a financial adviser, we can all do with helpfrom time to time to enable us to make more senseof our financial arrangements. Good financialadvice leaves each of us feeling more secure in ourpersonal and professional lives, and more confidentabout the future.

We benefit as a society if people are able to takegreater responsibility for the financial decisionsthey need to make. And, if consumers of financialproducts, all make better, more informed decisions,then the market will respond with moreappropriate and better value products and services.

For the financial services industry too, greater use ofadvice services can bring benefits. An informed, well-advised public will want to make better use of theirmoney, purchasing a range of financial products andservices to meet their needs. For all these reasons,generic advice has been chosen as a priorityworkstream for the financial capability strategy.

To take the work forward we established aWorking Group on Generic Advice, which I chair.We published a paper in July 2004 explainingwhere the Working Group had got to inconsidering whether, and if so how, generic adviceshould be made more widely available. The paperraised a series of questions on which views were

invited. This publication reports on progress withour work and sets out the next steps.

We received a wide variety of replies to our July2004 paper. But taken together, the strong messagewas that there are problems in both the supply ofand the demand for generic advice services.Commentators were clear that it would help if ourwork made it clearer to providers what genericadvice is and gave confidence to consumers thatgeneric advice services are of a suitable quality.

In response, our early work has focused onelaborating the definition of generic financialadvice (see page 6) and developing a qualityassurance standard for its provision (page 13). We are working with the Financial Services SkillsCouncil on the latter and expect the project to becomplete in early 2006. We have also alreadydeveloped and launched a pilot version of thehealthcheck which you can test out for yourself at www.bbc.co.uk/healthcheck andwww.fsa.gov.uk/consumer/healthcheck

More generally, we have commissioned a review of delivery of advice services to help us understand more about what works best forconsumers. We are publishing the review (seewww.fsa.gov.uk/pubs/consumer-research/crpr43.pdf)with this document. It is clear from this that weneed to do more work in two particular areas:exploring the potential for telephone delivery ofgeneric advice and identifying how best to addressthe demand side issues to engage consumers withgeneric advice. We are working on a plan fortaking this work forward next. We plan to reportagain on the next phase in the first half of 2006.

Anna BradleyDirector, Retail Themes Division, FSAChair, Generic Advice Working Group

BackgroundAdvice services are the missing link for manyconsumers. Having help from somebody withspecialist knowledge can make the whole process ofdealing with personal finances quicker and easier.

Financial education is an essential baseline that canraise financial skills and understanding, but eventhe very best in education can only take us so far.Good financial information is useful to those withthe ability, motivation and time to find it,understand it and use it. But this leaves a largenumber of us out on a limb.

Getting help to guide us through an analysis of oursituation and our options can make the differencebetween action and apathy in the face of difficulty.Of course, getting advice doesn’t absolve us ofresponsibility for the decisions we make as a result,but it does make the process less formidable anddecisions easier to reach.

The obvious benefits of financial advice services arenot reflected in their accessibility to consumers inthe UK. This is particularly the case for genericfinancial advice. That is why the National Strategyfor Financial Capability identified generic financialadvice as one of its priorities and why the WorkingGroup was set up.

Generic financial advice

Generic financial advice is not as widely available inthe UK as we think it should be, but our research hasidentified examples of generic financial advice that iscurrently available and which might be developed inthe future.

We give some examples in yellow boxes. These areillustrative, non-exhaustive and do not imply anyendorsement of the services described.

In July last year, we published a paper setting outhow we intended to approach this subject. Weestablished a working definition of generic financialadvice, looked at existing provision and set outeleven key questions which we wanted help toaddress. This document contains some practicalproposals for taking the work forward. It is not thelast word, but it is the next step.

The proposal later in this paper that relates to a setof quality assurance standards is not accompaniedby a detailed cost benefit analysis. This is becauseadoption of the scheme would be voluntary. As aresult, this work differs from the work which theFSA normally undertakes in fulfilling its regulatoryrole and different processes apply. In addition, theset-up costs of developing the standards involveonly modest expenditure.

Feedback on our July document

In July 2004 the FSA published an initial document,Building Financial Capability in the UK: the role ofadvice, which set out the approach which the GenericAdvice Working Group was taking on this issue.

The written responses, together with discussions with many interested parties, have helped us takethis work forward and have informed the contents of this paper.

Key elements and themes in the responses andcontributions received are summarised in these greenboxes over the following pages.

Financial Capability: developing the role of generic financial advice – August 20052

Introduction

Mind the gapIf there is a gap in the provision ofgeneric advice, why has the market failed to fill this?

Respondents gave a range of reasons why genericfinancial advice is not more broadly available. The main supply and demand issues cited were:

Demand

• Many consumers find financial mattersunappetising and will not proactively seekfinancial advice unless forced by circumstance.

• A lack of understanding among consumers that financial advice has value and might be worth paying for.

• A sense among some consumers that financialadvice is somehow not appropriate for them.

• A lack of trust and confidence in the financialservices industry and a sense that financial adviceis not impartial.

Supply

• A concern that generic financial advice might slip into regulated territory and, hence, potentialproviders prefer to ‘play safe’ and either not givefinancial advice at all or only give full regulatedadvice.

• The difficulty of providing generic financial advicecommercially to make a reasonable profit or atleast break even.

• A feeling that branch offices would be a naturalplace for giving generic advice, but there arefewer of these than in the past.

Our view is that there are separate but related short-comings on both the demand and the supply sides.

First on the demand side, cost can discourageconsumers from seeking financial advice but, as respondents have said, cost is not the onlydisincentive affecting the demand for financialadvice. Many consumers are suspicious aboutadvice services delivered by commercial financialorganisations. They are concerned that advicemight be driven by a need to achieve sales ratherthan by a desire to deliver impartial advice.Respondents suggested that firms could deal withthis shortcoming by the existence of a recognisablequality assurance standard that specificallyseparates the advisory and sales processes.

In addition, for very many consumers there is no culture or tradition of seeking professionalfinancial advice. Many people are unaware of suchservices or simply do not think they are suitable foranybody but the wealthy. Or, in the case of thevoluntary agencies that are giving advice, manyconsider them as an appropriate resource only forthose with significant financial problems.

Work under the National Strategy for FinancialCapability focuses on engaging people with theirown financial situation and needs, at a time andplace suitable to them, and in an environment theytrust. A good example of this is the pilot schemes to deliver generic financial advice in the workplace.Here we are finding that many people do want tofind out more and take follow-up action after havinghad their interest stimulated.

Some people are able to pay for financial adviceservices. If you can afford to pay, and do not havethe time, expertise or inclination to manage yourpersonal finances single-handed, then seeing aregulated financial adviser is the obvious thing to do.

Let us now take a look at the supply side of theequation. Regulated advice – which can end withdetailed recommendations about the purchase ofcomplicated financial instruments, such asmortgages or investments – is provided by skilledand qualified people who require appropriatefinancial rewards for their efforts. Full adviceservices are therefore relatively expensive toprovide. As a result, financial advice services aremarketed to consumers who are willing to pay a feefor advice or who are likely to purchase productswhich will generate revenue for the adviser. In bothcases of course, the consumer is paying but, in thelatter case, the payment is less direct.

How can generic advice assist inpromoting financial inclusion?

There were not many direct responses to the questionof how far generic financial advice can assist inpromoting financial inclusion.

Some respondents felt that generic financial advicewas not the most appropriate tool to meet the needsof people in these circumstances, who often havevery specific issues that need addressing. Some saidthat this should not be a priority for the genericfinancial advice project.

Most respondents who expressed a view said thatgeneric financial advice should be designed to meetthe needs of the financially excluded where possible.


At the other end of the wealth spectrum, moneyadvisers in the not-for-profit sector provideunregulated, generic financial advice services. Buteven though the costs of regulation do not apply,there are other costs, of course, including that ofcovering liability for the advice given. The resourcesof these providers are limited and stretched and, asa result, the services are largely geared up to dealwith clients that have severe debt problems.

This means that for many consumers there is a realabsence of affordable, accessible, trusted advice onhow to manage their money now and to plan forthe future.

Should we aspire to a generic financialadvice service which is free to everyrecipient or, instead, free only to certainrecipients?

There was almost complete consensus that genericfinancial advice should be available free at the pointof delivery.

Some respondents qualified their view with the words ‘in principle’, noting that the costs of freedelivery might be excessive, particularly for a face-to-face service.

Others suggested that those who could, or those who wanted to, might pay all or some of the costs,so long as everyone had access to a service at aprice they could afford, which would mean someavailability of a free service.

The good news is that there is a shared ambitionamong many of the existing advice providers toincrease the supply of generic financial advice. Thereare a number of organisations which already offer avariety of types and standards of generic financialadvice and would be keen to do more under the rightcircumstances. These include commercially motivatedmainstream financial services firms (including somehigh street banks) and not-for-profit advice services,employers, colleges and universities. We give examplesof these (see yellow boxes). However, many are waryof the regulatory issues and the risks of liability. Andpotential new providers may be unaware of thebenefits of offering generic financial advice to theirconstituency of consumers and also unsure what theycan deliver and how they can deliver it.

Overall, there is a great deal more that could bedone to supply more comprehensive generic financialadvice and an appetite for doing it. So what isstopping providers from taking a bold step forward?

Delivering generic financial advice might appear to be a risky business. Some might see uncertaintyabout, for example, precisely how far they can gobefore the advice being given requires the advisersto be authorised by the FSA. More generally, thereare concerns about the extent of liability thatorganisations have for the advice that they give.The absence of clear standards across the genericfinancial advice field is unhelpful, and it is difficultto promote generic financial advice to consumerswho do not understand what it is or what it canoffer. And the very existence of the FinancialCapability project and its workstream on genericfinancial advice might cause prospective providersof advice to hesitate and wait for some grandsolution to fill the generic financial advice gap.

We would like to take some of the uncertainty outof providing generic financial advice. We want tocreate an atmosphere in which a network ofdifferent providers can all contribute to makinggeneric financial advice of a more consistent qualitymore readily available.

The different providers in this network would alldeliver generic financial advice in ways which bestmeet the needs of their particular client groups, but the advice itself would be of a consistentlygood quality.

One of the key aims of our work programme is tocreate more certainty for existing and potential newproviders. We hope this will encourage them tooffer more generic financial advice and to offer it in ways which are readily accessible.

A network of advice servicesWe would like to see a network of generic financial advice services that are readily availablethroughout the UK and are provided free or at anaffordable price.

The network should be easily accessible through avariety of channels including face-to-face, over thetelephone and digitally (including the internet).Services might be provided through the workplace,on the high street, at college or university or inpeople’s homes.

And the network should be promoted in an engagingway, encouraging people to take advantage of thishelp to address their personal finances.


Is there a case for:

a. a single generic advice service and/orset of tools with a broad reach, or

b. extending the reach and quality ofexisting tools and services and filling gaps?

Respondents’ views were divided between the benefitsof a single service and those of a diversity of providers.

However, it was evident that respondents haddifferent visions of what a ‘single service’ might be.Some viewed it as nothing more than a basic, web-based diagnostic tool, while others envisaged a fullyfledged, face-to-face, national advice service. Sotheir views were coloured by their particular vision.

Several respondents suggested having a defined qualitystandard and an accreditation mechanism as a meansof contributing to the building of a trusted brand.

For existing providers, it will be essential that thiswork creates an opportunity, and does not pose athreat. It needs to be consistent with the FSA’sregulatory approach – proportionate and risk-based– and work with the grain of current delivery. Itshould enable providers to add value to what theycurrently offer and to improve the services theyprovide to consumers.

To achieve this, we will establish a frameworkwithin which sustainable provision of this kind ofgeneric financial advice can flourish.

The framework will identify and promote a particularform of good practice in generic financial advice. Itwill establish an approach which is voluntary. A keysuccess measure for this approach will be thenumbers of providers, commercial and not-for-profit,which adopt it. We will be working closely withcurrent providers of generic financial advice to ensurethat what we are proposing is practical and isconsistent with existing good practice.

What’s in a name?Those dealing with policy in this area broadlyunderstand the term ‘generic financial advice’. But it is not a name that is likely to generate any enthusiasm among consumers.

We think there would be value in adopting acollective name for the generic financial advicenetwork we want to see built. We don’t think thereis an obvious candidate: there is already a host ofnames for different types of advice – financial,regulated, basic, simplified, money and debt, forexample. We need to find something that describes

the range of generic financial advice services, whichis meaningful for consumers and clearly differentfrom full regulated advice.

We will be developing such a name, alongside thework that is being done on branding and promotionfor services and tools that will be created under thefinancial capability banner. Clearly, this will need tobe tested with consumers. For the purposes of thispaper, we have continued to use the term ‘genericfinancial advice’.

A framework for generic financial adviceThe following pages set out the elements we thinkare needed to provide a framework for genericfinancial advice. They include:

• a definition of generic financial advice;

• a clear understanding of the risks associatedwith giving generic financial advice;

• ‘good practice’ on the conduct and recording ofgeneric financial advice sessions, particularlyregarding any handovers to sales or regulatedadvice processes;

• voluntary quality assurance standards to tie allthe above together, and

• an approach to the promotion of genericfinancial advice and the value it offers whichwill engage consumers.

How should any extended or newservice(s) be funded?

No clear consensus emerged from respondents on the question of who should pay for generic financialadvice. Three possible candidates for funding (theindustry, the FSA and the Government) were supportedto varying degrees by different respondents, and somesuggested a ‘cocktail’ of funders.

It was clear from the nature of the replies that many people had answered the question on theassumption that generic financial advice would beprovided through a single service and that fundingwould therefore be needed on a centralised basis.This might explain why there was a slight preferencefor Government funding among respondents.

Most of those who proposed industry or FSA fundingqualified their answer by saying that the funder ofchoice would depend in part on the likely cost.


The basic definitionIn our 2004 document, we offered a workingdefinition of generic financial advice, which wasbroadly accepted by respondents. Our workingdefinition has only been slightly refined as:

‘Generic financial advice is a set of services andtools that use information about individuals’circumstances to help them to identify andunderstand their financial position and their needsand to plan their finances accordingly. Genericfinancial advice helps consumers identify:

• their current financial position and, therefore,the choices and possible priorities for actionappropriate to their needs;

• how to take the next steps in addressing theirpriorities; and

• how to access other relevant sources ofinformation and advice.’

In our 2004 definition, we didn’t deal with thequestion of coverage. We have found the most usefulway to discuss this is in terms of ‘breadth’ and ‘depth’.

BreadthThe breadth of an advice service is the range ofsubject areas that it covers.

We want to define generic financial advice asincluding the following subject areas:

• budgeting;

• borrowing (including mortgages);

• emergency provision;

• protection; and

• savings and investments (including retirementplanning and converting assets into income).

For most people, this list represents the basic set of personal finance issues that they might want ageneric financial adviser to address.

State benefits and taxation issues should also beaddressed to the extent necessary to deal with theabove needs and issues. But, for more specialisedadvice in these two areas, there are other expertresources available.

A particular generic financial advice service wouldnot have to cover all of these areas, but it could. So a network of different generic financial adviceservices would provide cover across all these areas.

DepthWithin any particular subject area, a financialadviser might give advice of varying depth. Theprocess of giving advice can be described inprogressive steps, but not all are appropriate for generic advice:

1. engagement – explaining the importance of moneymatters and the need to take appropriate action;

2. establishing the reason the client has come toseek advice;

3. gathering relevant information from the client;

4. establishing the client’s current financialposition, their aspirations and goals;

5. identifying priorities and options for the clientto consider;

6. identifying, if appropriate, product types thatmight meet the client’s needs;

7. recommending a particular product type; and

8. identifying a specific product to buy, hold or sell.


The definition of genericfinancial advice

We want to define generic financial advice asincluding steps 2-6. Step 1 has to be achieved forconsumers to approach generic financial advice atall, but this task can be fulfilled by many parties,not only those providing generic advice.

In the investment field, step 7 risks moving advisers into regulated territory. At this point,recommendations are being made about assetallocation and portfolio balance. In other areas, itis less clear that a generic financial adviser wouldbe moving into regulated territory. But in theinterest of reducing uncertainty and keeping thingssimple, we propose that the boundary of genericfinancial advice should be drawn at the end of step 6 (i.e. before step 7).

We have tried to illustrate our thoughts about thebreadth and depth of generic financial advice and theboundary with regulated advice in the above diagram.

We will test this proposition further as we continuethe work. In particular, clarity about the scope willbe a critical element in the work we will be doing toestablish quality standards for the delivery of genericfinancial advice (described later in this document).

The proposed EU Markets in Financial InstrumentsDirective could also influence our proposals. This isbecause, depending on its final provisions, it mightmean that some forms of generic financial advicewill be required to be regulated. So, we have drawnthe boundaries of our definition at a point whichfalls outside the scope of the proposed Directive asit is currently drafted.


Breadth

Depth

1. Engagement

2. Reason for seeking advice

3. Gather information

4. Establish client’s goals

5. Identify priorities/options

6. Identify product types

7. Recommend product types

8. Identify specificproducts

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More information

Other specialist advice e.g. debt

counselling

Basic financial advice

Full financial advice

Advice is unregulated by the FSA

Proposed scope of generic financial advice

Benefits and taxation included to the extent relevant(specialist advice outside scope)

Some advice may be regulated by the FSA

Advice is regulated by the FSA

Key

Generic financialadvice

How far should generic advice tools andservices go beyond signposting the routeto answers?

There was agreement that generic financial adviceshould stop short of specific product recommendations,but less agreement on exactly how far it should be ableto go. Some felt that it should never give more than‘stock’ answers to generic issues, while others thoughtit should be more personalised and result in‘suggestions’. Some thought this should go as far assuggesting an appropriate level of life cover, forexample, or even suggesting the names of providers of‘safe haven’ products. Others felt that this went too far.

Some respondents felt that the essence of genericfinancial advice should be about explaining choicesor empowering consumers to make those choices.

Are there limits to the content and detailof generic financial advice?

The respondents to this question identified it as adifficult issue. They were generally agreed thatgeneric financial advice should be fairly simple andfocus on the key issues. But they also recognised thedesirability of generic advisers being able to answeralmost any question put to them. In other words, theideal service would be simple and complete.

Some respondents felt that generic financial adviceshould be able to offer a general ‘check-up’, forexample, but also help with specific single issues ifthat is what the consumer wants.


Concern about liability is often quoted as one of themain reasons why generic financial advice servicesare not as widely available as they might be. Thereis nothing that can be done to remove this riskaltogether, but it be made it more manageable.

One risk that we can address is that of genericfinancial advice providers slipping into the territoryof regulated advice by mistake. A clear definitionand boundaries for the set of services provided byquality assured generic financial advisers, togetherwith our published perimeter guidance on regulatedadvice1, will reduce the risk that such advisers willstray into regulated territory.

By working with providers to establish agreedstandards for generic financial advice we can alsoreduce the more general risk of advisers givinginadequate or inappropriate advice. We should beable to reduce variations in the quality of the serviceand raise overall standards. If you are a providerand you work to the published standards, then thechances are that you will be better placed to defendagainst possible claims. And recording the dataconsumers provide and the advice given to themshould reduce the scope for later misunderstandings,and so you may also face fewer claims for liability.

But the risks can never be removed entirely. Alladvisers – regulated and generic, in the financialservices industry or in the not-for-profit sector –face liability risks and will continue to do so. That is why they take out professional indemnityinsurance (PII). We hope that the development ofstandards and quality assurance schemes will bereflected in the terms of PII offered to genericfinancial advisers.

On 1 July 2005, the Government amended theFinancial Services and Markets Act 2000 (FinancialPromotion) Order 2001 to make it easier foremployers to promote the take-up of their pensionschemes by their employees. This change exemptsemployers which actively promote pension schememembership from the need to be regulated,provided the employer contributes to the schemeand does not receive a direct financial benefit (suchas commission) from promoting the take-up ofpensions. This does not change the potentialliability for unsuitable advice. But it paves the wayfor employers to explain to their employees howthey would benefit from taking up the pension theemployer is offering.

What liability might attach to anyanswers or recommendations given [as part of generic financial advice]?

Most respondents felt that there was no avoiding theissue of liability, though several suggested thatsensible record-keeping and using only trainedadvisers could limit the extent of possible claims.

Employee benefit packages

These are financial advice services available toemployees or union members.

For example:

Aegon Benefit Solutions offers a web-based, softwareapplication that gives all staff of participatingemployers instant access to financial information. It covers issues relating to work, home and family,retirement and investment.

www.benefitsolutions.co.uk


The risk of giving advice

1 See http://fsahandbook.info/FSA/extra/Perg.pdf at 2.7.15, 4.6 and 5.8.

Generic financial advice will be defined in a waythat means it can be offered on its own, completelydistinct from any sales process. Indeed, for somepeople we expect this to be one of its mostattractive features.

Authorised Financial Adviser

Regulated financial advice is, broadly, advice toinvestors on the merits of buying, selling and doingcertain other things with particular specifiedinvestments. It is capable of going well beyond genericfinancial advice and offering a full advice service,either covering the whole market or limited to theproducts of one, or a selection of, financial companies.

It is either provided ‘free’ to clients (with the firmtaking payment by commission if a sale is made) orprovided as a fee-based service (with commissioncosts saved, benefiting the client).

Independent advisers must cover the whole marketand offer clients the opportunity to pay by fee,though most offer a choice of commission or fee.Some advisers offer an online service.

For example:

You can find a local regulated financial adviserthrough IFA Promotion (www.unbiased.co.uk). In2004, they dealt with 440,000 requests for details oflocal IFAs via their freephone or online searches.There are currently around 9,000 member firms.

Or you can locate an adviser with the CertifiedFinancial Planner qualification through the Instituteof Financial Planning (www.financialplanning.org.uk)

Advisers typically meet clients face to face andpurely web-based advice is uncommon. But oneexample of online advice is Advice Online(www.adviceonline.co.uk).

But the sorts of material covered by generic financialadvice will be very similar to the kind of advicecurrently offered by, for example, authorisedfinancial advisers in the early stages of their clientinterviews. Some providers may therefore want toalign their advice processes with the standards forgeneric financial advice so that they offer a two-stageadvice process: generic financial advice, followed, ifrequested, by either Basic Advice or full regulatedadvice and the offer of a sale where appropriate.

Some consumers, too, may find it convenient tomove on from generic financial advice to moredetailed discussions, recommendations and,possibly, sales.

Basic Advice

Basic Advice is a simple, quick and low cost form offinancial advice on a range of relatively simpleinvestment products, taking a high-level view ofmedium and long-term savings goals. You are asked aseries of questions about your finances, which willcover areas such as your income, expenditure andcurrent savings.

Basic Advice helps you to assess whether you have anymore urgent financial needs and can help you decidewhether the product offered is suitable for you.

For example:

Legal & General offers ‘Basic Advice’ on a StakeholderMedium Term Investment Plan designed to cater forthe needs of the first time investor.

www.legalandgeneral.com/invest/sandler


The link to regulated advice

The FSA sees a need to establish a clear distinctionbetween generic financial advice and regulatedadvice. So we expect the voluntary qualityassurance standards we set for generic financialadvice to include undertakings for the handoverfrom generic financial advice to any further adviceor sales channels. This would ensure that there is aclear break in the process and the consumerunderstands that the terms and nature of the adviceis about to change. It would also make sure theconsumer is under no pressure to continue thesession beyond generic financial advice.

We are thinking of including provision in thevoluntary standard for a basic record of the genericfinancial advice session to be maintained. Theadviser could then give the consumer a summaryenabling them to take the basic data that had beenrecorded to any other provider of financial adviceor products if they want more detailed advice or tomake a purchase. If the generic financial adviceprocess is to be followed by an immediate moveinto regulated advice or sales, the summary couldbe handed over to the consumer before that moveis made. This would signal the end of the genericfinancial advice process and also form a usefulrecord of the session.

An alternative or addition might be to impose acooling-off period between the end of genericfinancial advice and the beginning of any otheradvice process. But this could only be effectivewhen the same firm operating under the proposedvoluntary standard for generic financial advice alsogives regulated advice. So it would perverselydiscriminate against firms which had adopted thequality standard. Therefore, it is not an option wesee as attractive

We have indicated here our current position onthese issues, but it should not be regarded as fixedand debate continues within the Working Group. It would be most helpful to receive additionalcomments that would inform our thinking in this area.

Nothing in the current FSA regulatory regimeprevents regulated advisers from relying onappropriately detailed facts about the consumerrecently recorded in a session with a genericfinancial adviser. Such record of the facts would, in effect, be the consumer’s own record which they were confirming as correct and up to date.

Equally, there is nothing in the current FSAregulatory regime that prevents a regulated advisergiving advice focused on one specific area of need if that is clearly agreed with and understood by theclient. So, if a consumer, acting on generic financialadvice, went to a regulated adviser to follow upone particular aspect of that advice, that is alreadyprovided for under the rules.

However, experience suggests that there isconsiderable caution among regulated advisers, sothere may be some misunderstanding. They maythink that this would be equivalent to enabling theregulated adviser to rely upon the advice given bythe generic financial adviser. Or they may believethat providing focused advice in such a circumstancewould entail taking on liability for the suitability ofthe generic financial advice too. Neither of these isthe case: the regulated adviser would be relying onthe client’s preference to focus advice on an agreedpriority, and the generic financial adviser wouldretain any liability for the suitability of the genericadvice given.

To streamline the situation and help avoid consumershaving to go through the same information againwith a second adviser, the FSA would be prepared toconsider introducing regulatory guidance. We areinterested in views on whether additional guidancewould help bring further clarity.

Advice from other professions

Alongside their main professional activities,chartered accountants and solicitors often providepersonal financial advice on tax avoidance, trust andestate planning, usually on a fee basis (with the feebeing set against any commission they receive).

Consulting actuaries are mainly concerned with largercompany pension schemes, but some may givepersonal financial advice.

www.icaewfirms.co.uk

www.lawsociety.org.uk

www.actuaries.org.uk


How will the generic advice process relateto the currently regulated advice process?

How can generic advice services remaindistinct from any sales process withoutleaving people ‘up in the air’?

There was general agreement that there should be aclear separation between generic financial advice andregulated advice and that generic financial adviceshould complement regulated advice rather than be a substitute for it. Some respondents made thecomparison with paralegals or paramedics.

Some respondents suggested that we need to avoidconsumers having to give the same information twiceand suggested that regulated advisers should be ableto rely on the information already provided to ageneric adviser.

Many respondents said that training and/oraccreditation would help ensure that the boundariesare respected.

Respondents varied in their views on the need for astrict separation of generic financial advice from thesales process. Some felt that the independence andimpartiality of the advice could only be retained (orseen to be retained) if it were kept totally separate.Others thought that consumers would be leftbewildered if the advice suggested they buy a product,but left them without a way to follow that advice.

But all were agreed that it was important to ensure a clear distinction between generic financial adviceand any follow-up sales process.

One suggestion, which was repeated in various forms,was that the generic financial advice session shouldend with the adviser handing over a documentsummarising the advice. This was variously describedas a piece of paper, a common format for storing theinformation, a portable fact find, a prescription, areminder, a financial profile and an assessment (likean eye test).

There was also a clear view that consumers shouldnot be left up in the air and that the advice shouldclearly signpost the way forward, possibly alsoincluding online tools to assess the differentproviders of financial products.


The proposalOur proposal is to identify and define genericfinancial advice that could be offered to consumersto a consistent standard by a range oforganisations. We believe this idea has widesupport within both the financial services industryand not-for-profit advice agencies.

A number of respondents to the July 2004 papersaid that the existence of a recognisable andconsistent standard would create a virtuous circle:having the potential to stimulate demand (byimproving consumer confidence in a trusted brand)and (because the demand would be more evident)stimulate supply of good quality generic financialadvice.

Any organisation wishing to provide genericfinancial advice would be able to use our model,including the standards we develop – identifyingthemselves and their service as part of a widernetwork of generic financial advice providers.

Over time, and with appropriate branding andpromotion, consumers would begin to recognisethe concept of generic financial advice, appreciatehow useful it can be, and use generic financialadvice services on a regular and routine basis.

This is not a regulatory initiative on the part of theFSA. What we are proposing is a voluntary schemeapplicable equally to regulated and unregulatedadvisers, and designed to ensure consistency in thesupply of generic financial advice. It will onlysucceed if we work alongside the financial serviceand voluntary sectors to design a product that theywill find attractive to accommodate into theirexisting and wider business practices and businessmodel. The standard will have to deliver a servicewhich meets the needs of consumers, particularly interms of accessibility, cost, impartiality and utility.

Major financial institutions

Major financial institutions such as high street banks,building societies and insurance companies willusually offer financial advice free. Where they go onto make product recommendations, these will usuallybe limited to their own products or those of a limitedrange of companies whose products they retail.

For example:

HSBC Bank offers its customers an individual review.On a face to face basis or by telephone, the reviewprovides customers with the opportunity to discusstheir individual circumstances without the obligationto progress with any recommendations made.

Norwich Union provides a financial advice service,including over the telephone, to thousands of itscustomers each year.

What kind of standards will wedevelop?To take this proposal forward, we are workingwith the Financial Services Skills Council (FSSC) todevelop a set of quality assurance standards forgeneric financial advice.

We will also work with the Chartered InsuranceInstitute (CII) and others to ensure that processesare in place for training and, where appropriate,examination to meet the standards set down forgeneric financial advisers.

We expect the standards to define the boundaries ofgeneric financial advice, establishing a set of coreskills and competencies which generic financialadvisers should have and fleshing out the diagramon page 7.


Setting standards

The standards would also seek to establish a cleardistinction between the generic financial adviceprocess and any subsequent regulated advice orsales process. They would include a requirementfor basic record-keeping and the provision of awritten record of the advice given during an advicesession, as well as the information about the clientupon which the advice was based.

Organisations that wish to give generic financialadvice in line with the standard would need to takeappropriate steps to ensure that they employ peoplewith the right skills to give the advice. They mustalso have processes in place to ensure the standardscontinue to be met.

Accreditation – a recognisable ‘badge’ that isassociated with meeting the standard is a related but separate issue. Some believe that it would bedesirable for those complying with the standards to be subject to accreditation to ensure they areapplying the standard. While this may soundsensible, it is not entirely self-evident that would bethe best way forward. An accreditation arrangementwould involve both initial and ongoing costs ofinspection and monitoring which, for someorganisations, may not bring commensurate businessbenefits. It is likely that established organisationswould instead incorporate the standards within theircurrent training schemes. So even though a ‘badge’would be reserved to those with accreditation, anorganisation could not be prevented from stating thatit operates to the published national occupationalstandard if indeed they do. Nevertheless, the FSSC ispiloting an accreditation scheme which could runalongside any of their occupations standards. We willneed to give further consideration to these issuesalongside the development of the standard.

The processAlthough any resulting standards will be owned andmaintained by the FSSC, the FSA will be makingfunds available to help develop the standards andwill lead the development process. To help in theprocess, the FSSC is now establishing steering andworking groups, which include representatives froma wide range of interested organisations includingthe financial services industry, the voluntary andconsumer sectors and the legal sector.

The standards will be developed through a series of facilitated sessions and agreed by the FSSCsteering group and working group before beingmade more widely available for discussion andconsultation. Once developed, the FSSC will seekto get the standards adopted as NationalOccupational Standards.

TimetableOur indicative timetable for developing the qualityassurance standards for generic financial advice isas follows:

Following the launch of the standards, current ornew providers of generic financial advice would befree to develop the necessary training and oversightprocesses to pilot and implement the standards.


Agree detailed project plan.Mapping, where appropriate,to existing advice standards

June – July 2005(done)

Develop competencies,performance criteria andknowledge base

August – September2005

Wider consultationOctober – December2005

Review standards in light of consultation

December 2005 –January 2006

Launch standards January 2006

What if nobody comes?There is no point in developing standards forgeneric financial advice and encouragingorganisations to make it more widely available ifwe do nothing to encourage consumers to use it.

If there was a huge demand for generic financialadvice, the ‘market’ might look somewhat differentand the gap in provision might be smaller. It will be important for us to understand what is puttingconsumers off and what might positively encouragethem to engage with financial advice, and genericfinancial advice in particular. Gaining thisunderstanding will be a particular focus for work in the next period.

How can we encourage people to use anyextended or new generic advice tools andservices?

Many respondents commented that generic financialadvice would have to earn itself a reputation forindependence, convenience and usefulness before it would take off.

But almost all said that it would also need asubstantial promotional campaign, possibly basedaround getting messages to people at key life stages.Some commented on the need to link this in with amore general campaign to increase awareness of thefinancial capability strategy.

What works and what doesn’t?It is not enough to make generic financial advicefree, to ensure that it is useful and to make clearthat it is impartial. Many consumers will still needto be persuaded that spending an hour or two withan adviser is a better use of their time thanapparently more interesting or immediate activities.

We commissioned a review of studies into thedelivery of advice services in a range of contexts(financial and non-financial). The objective was tolearn from the experience of others about whatforms of advice delivery work best for whatreasons. This work has helped inform our thinkingabout the kind of services that need to be deliveredin the new generic financial advice services networkand about how we might engage consumers withgeneric financial advice.

Debt advice services

Specific advice available to those with debt problems.

For example:

National Debtline is a national telephone helpline forpeople with debt problems in England, Scotland andWales. Now part of the registered charity MoneyAdvice Trust, it provides a free self-help advice andfact sheets to its callers.

www.nationaldebtline.co.uk

The main conclusions of the review were that nosingle delivery channel alone is likely to be effectivein delivering generic financial advice. Face-to-facedelivery is popular, but does not appeal to all.Telephone advice is popular both with adviceproviders (as it is cost-effective to deliver) and formany consumers is their medium of choice (asthere is near universal access to a telephone andout of hours access is valued). There are stilllimitations to the reach of internet-based advice,but for some sectors of the population this is nowthe channel of choice – particularly among youngpeople and some older people.


Engaging with consumers

The review is being published on the FSA Financial Capability website

www.fsa.gov.uk/financial_capability

at the same time as this paper. But it is only a smallpart of the work that will need to be done toensure that we know how to promote genericfinancial advice effectively.

Much of the responsibility for promoting genericfinancial advice services will rest with individualadvice organisations. Many of them will have longand deep experience in promoting such services.

But it will also be an important part of the NationalStrategy for Financial Capability to promote genericfinancial advice. The Financial Capability SteeringGroup is leading this important work on promotionand branding.

Money advice in the context of moregeneral advice

Generic financial advice (often debt-focused) is givenat advice centres or on general advice websites.

For example:

Citizens Advice Bureaux (CAB) provide free,confidential and independent advice from over 3,200locations including bureaux, GP surgeries, hospitals,colleges, prisons and courts. Advice is available face-to-face and by telephone on a range of issues, notablybenefits, consumer and debt, housing, employmentand legal issues. Of the top five problems the CABdealt with in 2003/4, the second highest category was‘consumer and debt’ (1,444,000 new problems).

Customer benefit schemes

Advice services offered by third parties to thecustomers or clients of a commercial organisation.

For example:

The CPP Group plc, a customer assistance business,offers a service called ‘Financial Health’ to thecustomers of any of its 300 business partners whopay to subscribe for it. The service includes afinancial health telephone helpline with adviserstrained by Money Advice Trust, a financial fitnessplan, a website and, for those who need it, afinancial rehabilitation programme.

www.cpp.co.uk


This paper has, so far, concentrated on our proposalsto stimulate the provision of generic financial adviceby developing a framework for delivery. Anotherway to stimulate a market is to bring a product to it.That is why the FSA has created, in partnership withthe BBC, an interactive web-based tool, known asthe Financial Healthcheck. It provides entry-levelgeneric financial advice, for use over the internet. Itis designed primarily as a ‘do it yourself’ (DIY) tool,but can also be used by third parties, such asvoluntary advice agencies.

Our work on mapping the existing provision offinancial planning tools had highlighted the factthat although there is a vast range of informationon personal finance available to consumers, muchof it relates to specific needs (eg retirementplanning) or specific products (eg pensions).

The few more general financial planning tools thatdid exist tended to be either aimed at the moreexperienced user or were designed primarily todraw attention to information about the productsavailable from an individual provider.

There is relatively little information on personalfinancial planning in general and there are fewtools to help the less financially experiencedidentify and understand their financial needs.

In what ways can generic advice bedelivered? What balance should there be between the availability of DIY andassisted (person-to-person) delivery?

Most respondents agreed that it was sensible todevelop a web-based diagnostic tool. Beyond that, the general feeling was that the more channels thatwere available, the better, but that it could get very(possibly prohibitively) expensive once person-to-person advice was included, particularly if it is face-to-face.

However, some respondents suggested that, regardlessof the expense, the only effective way to delivergeneric financial advice to most people is face-to-face.

Against this background, we thought a well-designed Healthcheck could provide an independent‘entry level’ tool that could encourage and helpthose new to personal finance to take the first stepsin generic financial advice by helping them to:

• identify and understand their financial needs;

• identify possible priorities and next steps; and

• identify other relevant sources of informationand advice.


The Financial Healthcheck

How it worksThe Healthcheck uses basic, largely qualitative,information about the user’s circumstances tosuggest some broad areas of need and pointers foraction. It also signposts other relevant tools andsources of information.

It may be that practical experience of theHealthcheck over time will show that there is adesire for something extra – going beyond theentry-level and providing more detailed, morepersonalised, advice. In this event, we may want toenhance the Healthcheck or develop further toolsthat build on this starting point.

Web-based healthcheck tools

These are interactive web-based tools that generallytake input information about the user’s circumstances,may provide a limited diagnosis and pointers tofurther sources of self-help and, if commerciallyprovided, there will normally be sales links.

For example:

The Plan from the Pru (which had around 13,000 hitssince January 2005) and the Tesco FinancialHealthcheck are two examples of such tools.

www.pru.co.uk/plan

www.tescofinance.com

Launch and next stepsThe FSA worked closely with the BBC to developthe Healthcheck and an initial version of theservice was launched in June 2005 on both the FSAand BBC websites at: www.bbc.co.uk/healthcheckand: www.fsa.gov.uk/consumer/healthcheck.

Initial usage numbers on the BBC News websitewere particularly impressive. On the first day,154,000 people started and 125,000 completed thefinancial healthcheck. This shows that it is possibleto stimulate an appetite for a tool of this nature,particularly if offered in a convenient and high-profile environment. The high completion ratesupports the decision to keep the tool short andsimple to use.

We are continuing to analyse user information andfeedback to enable the tool to be refined further,and the next stage will be to offer it on otherplatforms and possibly in other media.


The intention behind the proposals in this paper isto extend the provision of generic financial adviceand so help to fill the ‘advice gap’. We think thiswill make a significant contribution towardsimproving financial capability in the UK.

The biggest challenge is to fill the middle ground,making generic financial advice a service for the‘mass market’. The proposals in this paper areintended to help achieve this. They arecomplemented, particularly in terms of stimulatingconsumer demand, by work being done under otherpriority workstreams of the National Strategy forFinancial Capability. In particular, the workplaceproject is exploring the potential for delivery ofvarious services through employers, including theprovision of generic financial advice. And theworkstream for young adults is exploring the valueof generic financial advice to young people.

Despite all this, there are likely to remain parts ofthe market which will simply not be provided withany form of generic financial advice. This meanswe do not exclude the possibility that we mighthave to look to the creation of new services, inaddition to developing current provision.

Timetable and plansThe Financial Healthcheck described on page 17will be evaluated and fine-tuned as necessary. If theevaluation is positive, we will promote wider take-up on other platforms.

Our work for the remainder of this year will focuson the development of the quality assurancestandards in line with the timetable on page 14, aswell as on pursuing other pilot schemes to test theviability of other ideas. Specifically, we want tolearn more about telephone advice and the bestways of achieving consumer engagement. Thiswork needs to be joined with the wider engagementwork for the strategy as a whole. We have alreadybegun work on brand development across theStrategy for Financial Capability.

We expect to provide an update on our progress inthe early part of next year, including any proposalsfor future work.


Next steps

Keep in touchWe will be posting progress reports on the strategy andwork of all the working groups on the FSA’s website atwww.fsa.gov.uk/financial_capability.

We welcome any comments you might have on the issuesraised in this paper.

Contact us via the website or by email:

[email protected]

Or write to us at:

Financial Capability TeamThe Financial Services Authority25 The North ColonnadeCanary WharfLondon E14 5HS

Financial Services Authority

25 The North ColonnadeCanary WharfLondon E14 5HS

Tel: +44 (0) 20 7066 1000Fax: +44 (0) 20 7066 1099Website: www.fsa.gov.uk

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