Charles McGready looks at the initiatives needed for the financial authorities to provide consumers with the support and guidance they require.
The media is awash with stories about profligate spending in the UK. It seems that Britons are finding it difficult to shake off the ‘spend it now and trust to luck’ attitude towards managing their finances.
This chronic under-saving means that a large proportion of the population lacks the financial resilience to deal with life’s adversities, with major consequences expected for the well-being of future generations.
Quite simply, we must encourage people to become savvy savers and wise spenders, and to develop the financial wellbeing to manage mortgage debt.
We of course need to recognise that a significant part of the population is struggling to just get by and cannot afford to save. But there are households with disposable income who would rather spend it than save.
Two of the central themes towards finding a solution that the industry’s regulator – the Financial Conduct Authority (FCA) – is focused on revolve around improving communication, so that people find it easy to understand and engage with their finances, and providing a level of guidance so that consumers have a financial ‘sense of direction’.
At the heart of the Smarter Communication initiative is the disclosure information that firms are required to issue. Many in the industry feel that the weight of regulation has meant that these communications have become exercises in risk mitigation more than customer engagement.
But this is set to change. In general, the FCA wants information to empower consumers to make informed financial decisions. The regulator is therefore working to remove ineffective disclosure requirements, avoid information overload and enable firms to make the most of digital innovation and adapt quickly to the fast-changing needs and expectations of consumers.
The FCA wants to create an environment and regulatory framework that supports consumer communications that are clear and simple to understand, and is encouraging the use of digital technologies to present information in ways that interest and engage people.
We feel there is a particular need to address the way we communicate with vulnerable customers. Society is becoming increasingly conscious of the many and various vulnerabilities that can expose financial services customers to increased levels of risk.
Our aim must be to achieve a reputation for plain speaking and transparency – ensuring that the way financial services firms interact with customers (particularly those with vulnerabilities) means that they become a trusted partner.
Alongside this we also need to improve the availability and access to guidance. The FCA’s Financial Advice Market Review (FAMR) Baseline Report, published in June, points to the bulk of the UK population – 82 per cent of adults or 43 million people – who either cannot afford regulated financial advice, or who do not have the levels of financial assets to make them feel it is worthwhile.
When FAMR launched in August 2015, it was set against a backdrop of concerns that the market for financial advice was not working well for consumers. Since then the impact from the introduction of the pension freedoms has only served to heighten fears that consumers are making often complex and far-reaching financial decisions without taking advice or guidance.
Our policy work clearly identifies that if we are to close the Advice Gap and tackle the barriers to consumers accessing advice and guidance, a financial guidance service to support the needs of the mass market and help people to make informed financial decisions should be at the heart of the solution.
Such a service must be robust and it’s hugely encouraging to see the moves to create a Single Financial Guidance Body combining the work of MAS, TPAS and Pensions Wise. But to be fully effective in meeting the mass market needs of 43 million people, we also need to empower the financial services industry to provide meaningful guidance.
The industry is currently restricted from helping millions of customers to make some basic decisions and we are trying to work with the FCA and government both to understand the issues and to help develop solutions.
We are also calling for greater co-operation between the new guidance body and industry, and have taken steps to begin exploring ways of working more closely together for the benefit of consumers.
We also need much greater consumer representation to ensure that the FCA and government address these pressing issues.The FCA’s remit is to protect consumers from making poor decisions, rather than to facilitate increased saving, and a greater emphasis on financial resilience is required to develop regulations that help people make good decisions. We are witnessing poor decisions being made by millions of people every year and are campaigning to change the rules to help consumers.
If we are to rekindle the savings habit in the UK, then we need initiatives like smarter communications and guidance to succeed. We have an excellent opportunity: it will require bold reform from the government and the regulator, with the continued support from the industry.
However, if we can achieve a sea change in the levels of saving right across society to create financial resilience amongst consumers, then the benefits will be felt by us all.
Charles McCready is strategic policy director at TISA.
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