PracticeConsultingFSA: A stake in your future

FSA: A stake in your future

We're told we don't save enough. We routinely spend too much on credit cards at Christmas. And how many of us are really putting enough aside for retirement?

But how do you tackle the problem of what is at best casual disregard for financial consequences, and, at worst, widespread financial illiteracy? The Financial Services Authority thinks it has the answer: grab them while they’re young.

Last month the FSA launched a new resource pack for teachers to help them deliver personal finance lessons to pupils.

Covering subjects as diverse as risk assessment in the context of credit and debt, ethical investment and the pluses and pitfalls of buying goods over the internet, ‘Make the Most of It’ has been sent to 5,500 secondary schools and sixth form colleges. It’s detailed enough to make you wonder whether personal finance classes should be run for most adults too.

FSA chairman Sir Howard Davies believes the drive can make a real difference.

‘Our mission is to invest in education today so that tomorrow’s consumers will be more financially literate than previous generations,’ he says.

And teachers are on board too.

William Ellis head teacher Michael Wheale says of the ‘eye-catching’ pack: ‘Because the material comes from the financial watchdog, the focus is on increasing understanding of financial services – it doesn’t promote specific financial products.’

The initiative looked more vital than ever earlier this month when the Consumers’ Association’s Which? magazine sent four researchers undercover to visit 38 stakeholder pensions advisers. They sought to cover the whole financial advice market: descending on 12 advisers from high-street banks and building societies, 13 from life insurance companies and 13 independent financial advisers.

Each researcher was given a personal scenario where a stakeholder pension was the most appropriate recommendation.

And on the surface, the results appeared encouraging. Some 31 of the 38 advisers visited did recommend a stakeholder. However the researchers found that the quality and amount of advice they gave about which stakeholder to choose varied greatly.

‘While a stakeholder was the right product for our researchers, in some cases the recommendation was reached more by luck than as a result of a thorough advice process,’ the magazine concluded. ‘There was often little or no discussion of the investment options available or a discussion about the customer’s attitude to risk, a vital part of giving advice.’

Advisers from banks – NatWest and Barclays were singled out – performed particularly poorly when it came to advising the researchers. Elsewhere it came as no surprise to learn that the researchers also often struggled to get past call centre staff to speak to a life company tied adviser.

Accountants will be pleased to hear that the most detailed and in-depth advice came from IFAs. ‘They were better at assessing customer’s attitudes to risk and didn’t automatically opt for the ‘default’ fund,’ according to Which?. ‘However, some IFAs did dismiss stakeholder pensions as a ‘bare bones’ or ‘cheap and cheerful’ option. And four of the seven advisers who didn’t recommend stakeholders were IFAs.’

Take-up of stakeholder pensions, launched last April to offer a viable pension option to the less well-off, has been lower than expected. Around 570,000 are thought to have been sold in the first eight months since launch.

But Helen Parker, editor of Which?, says there are no excuses for the poor advice on offer.

‘It’s not acceptable to dumb down the advice process because product charges are low. Either you are in the advice game or not.’

While a financial education programme for adults might not be viable, there is more that can be done to promote financial understanding.

Having cut his teeth at the Audit Commission – where he introduced performance indicators for local authorities – Sir Howard is now rolling out financial product league tables at the FSA. These ‘comparative tables’, updated on a daily basis, are designed to help consumers make comparisons between products based on a series of objective indicators.

Indeed the latest details more than 80 personal and stakeholder pensions by showing the effect of charges and deductions over the lifetime of a pension and just how expensive it can be to stop paying into a pension after just three years.

Further tables featuring investment bonds and mortgage and savings endowments will be made available in the coming weeks with other products following next year.

But while welcome, the tables will achieve little on their own when it comes to widening financial understanding on their own. How many of the general public knows about them, for instance?

If ‘Make the Most of It’ pays off, the next generation will be well served when it comes to financial understanding. But is there hope for this one?

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