Financial Advice and Guidance: Consumer Market

Debate between Harriett Baldwin and Gregory Campbell

Tuesday 9th January 2024 Westminster Hall

[Harriett Baldwin]

I want to limit my remarks today to consumers and their access to financial advice, but the Treasury Committee is doing an inquiry into access to finance for small and medium-sized businesses, and I encourage the hon. Gentleman to share with us any evidence he might have in that regard.

Our constituents need more personalised help to make them more financially resilient over their lifetime. We want them to be more prosperous, better informed and more able to prepare for the inevitable highs and lows of financial life. With the success of auto-enrolment, we now have millions more people taking personal decisions about saving for their retirement, possibly across a multitude of different pension schemes over a full working life. They need an expert hand to help them to make good decisions and yet, despite our world-leading financial services sector, it is surprisingly difficult to get help. That is because of the advice/guidance legal definitions.

Mrs Harris, I want to try out an analogy on you. Imagine a supermarket where, if you pay an up-front fee of several hundred or perhaps even several thousand pounds to join, you will, over your whole lifetime, be allowed to go into a section where you have a full choice of delicious, healthy food and other goods, offered at competitive prices. Someone will ensure that you are buying things appropriate for your age and dietary needs; they will suggest some terrific, easy-to-cook, healthy recipes and wonderful meal plans.

However, to make it worth paying the up-front fee, you have to buy exceptionally expensive goods or sufficient quantities, and only 8% of our constituents would in fact choose to pay the fee; everyone else in the supermarket chooses to avoid it. They wander round the generic aisles of the supermarket. They may see some generic NHS advice about healthy eating or something on the supermarket website. They pay much higher prices for the same range of goods and often choose the unhealthy and expensive options. They even find scam and rogue options that scam them out of their shopping money altogether, because anyone can set out a stall in the supermarket I am describing.

It is a slightly stretched analogy, but I know that you know what I am getting at, Mrs Harris. The quality and cost of financial advice in this country mean that we have created a marketplace where only the richest 8% of the population choose to shop and benefit from the healthy financial choices that our excellent financial services firms can give.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the hon. Member on this very timely and important debate. She is now moving into the important area of providing professional, impartial, independent consumer advice to ensure that people avoid making bad choices and to steer them in the direction of making good, effective choices.

[Harriett Baldwin]

That is exactly right. I am using this analogy to make us realise what a scandal it would be if we had supermarkets like the ones I have just described, but that is sort of what we have in our financial services supermarket. It is a slightly stretched analogy, but the quality and cost of financial advice means that we have created a marketplace where only the richest 8% of the population shop and benefit from the healthy financial choices on the menu that our excellent financial advisers can give.

The remaining 92% of our constituents end up unadvised. If they are lucky, they might find out that there is state-sponsored guidance such as Pension Wise and the Money and Pensions Service, perhaps through a newspaper article or a Google search. A small number do find that advice, but it is very generic. It can be useful and helpful but, more often than not, it leaves them with more questions than answers; it offers some very simple thoughts, which perhaps leaves people not knowing how the advice relates to their personal circumstances. Without urgent Government action to explore solutions for the unadvised, I fear that we are creating terrible long-term consequences for the nation’s savings health and for the prosperity of our constituents in retirement.

At its best, that generic guidance and the personalised guidance available through the Money and Pensions Service and Pension Wise is a bit like the generic advice from the NHS to eat five pieces of fruit and vegetables a day: it is useful but it is not going to help anyone make an informed investment choice. Yesterday, I did some mystery shopping on the Money and Pensions Service website to see what advice my constituents would get if they had received a small lump sum—perhaps an inheritance, a redundancy payment or some tax-free cash they had taken from their pension. I followed a link on the website’s landing page to an article labelled, “Types of investments”, which I thought might be helpful. That page then asked,

“Do you need help making smart investment choices?”

which I thought was probably the right page. I was then directed to the Financial Conduct Authority’s InvestSmart website. On the landing page of that website, the first article is called, “Crypto: The basics”. That is on the FCA’s website. The third article on the landing page is called, “Investing in crypto”. The website then said that, if I wanted advice, I needed to see a financial adviser, so I was back to square one. Those crypto pages are probably there prominently to warn people not to buy those products, but the prominence ends up looking like an endorsement.

There used to be a network of bank branches in this country, where people could go to talk to a human being who might be a bit more helpful, albeit that they would focus on their own-brand products. However, there have been so many bank closures that most people would not know where to start to find anyone to speak to face to face about savings and investment choices. Yet, we have asked millions more people to invest in their own pensions through auto-enrolment and have left them with a default provider—the National Employment Savings Trust—which charges an up-front load of 1.8%. We have given people pension freedoms, which means some very big decisions can be taken at the age of 55 that will have long-term consequences for people’s financial health.

As you can tell, Mrs Harris, I am not happy with this outcome for my constituents, and I am sure you are not happy with the outcome for yours. When I was Economic Secretary to the Treasury in 2015-16, I commissioned the financial advice market review, which tried to make financial advice and guidance work better for consumers. It came up with some good recommendations, including allowing consumers to redeem a small part of their pension pot against the cost of retirement advice in certain circumstances. However, at the time, it was constrained in what it could do by European regulations. Now that we are under way with the Edinburgh reforms and there is scope for a more UK-centric regime, I have been raising the problem once again.

In addition, Parliament has legislated for a consumer duty on financial services firms, which began to be implemented last July. We have a world-leading financial services sector with many excellent firms serving consumers well, but they are held back by regulations from offering their consumers any helpful advice from their own expertise. That could even contradict their consumer duty—if they can see their customers making poor decisions such as leaving long-term savings in taxable, low-interest accounts when they could perhaps be in an individual savings account or earning higher rates. Even Martin Lewis, whom many people turn to for financial wisdom, has told me he feels he is held back from recommending certain sensible things because it might be considered financial advice. So I very much welcome the proposals that the Government and the FCA have published jointly to address the advice gap. I think they go in the right direction.

There are three elements. Further clarifying the boundary between advice and guidance would give FCA-authorised firms greater certainty that they can give more support to consumers without providing a personal recommendation. It would help firms give consumers greater levels of support with more confidence to operate closer to the boundary. That is a necessary element, but on its own it might not surmount the cautious behaviour that we see from some compliance departments.

The second proposal is targeted support. The new regulatory framework will enable firms to provide broader support without up-front charges based on the limited information that they have on their consumer, and enable firms to suggest products or courses of action. That will be a key proposal to close the advice gap.

The third proposal is for simplified advice for consumers with smaller sums or simpler needs at a price that is commercially viable for both consumer and firm. With the development of technology, more powerful artificial intelligence tools and more data out there, innovators will find ways to give consumers more customised, less generic, financial advice—something like coaching or help—at a commercially viable price. Whatever we call it, such changes will help our constituents by giving them better and more personalised information to make their choices.

Some consumer groups worry about allowing our financial services firms more leeway to help their customers. To go back to the supermarket analogy, there are some bad apples even in the premium aisles of the supermarket. Last year the Financial Services Compensation Scheme paid out millions to those who were badly advised, but doing nothing about the advice gap is also a choice. I believe consumers are being harmed much more in the generic aisles of the supermarket, where often there is no regulatory redress.

The proposals are to be welcomed and should be brought in as quickly as possible. Let us also agree to do more for our constituents by making sure there ia much higher awareness of services such as Pension Wise and the financial advice money that people can take from their pension to pay for financial advice at key moments. I wish my hon. Friend the Economic Secretary well in implementing this important change. It will cost taxpayers nothing. It will harness the expertise of a range of excellent financial services firms and get much more personalised advice to our constituents when they take key financial decisions. I give power to the Minister’s elbow in bringing the changes forward.