The new service will give people a ‘one stop shop’ for unbiased help with personal finance matters, big or small. This is needed more than ever, as financial products become more complicated, and people take on more responsibility for managing their own financial wellbeing.
In December 2016, the government said the new entity would be “a place people can go for free, impartial financial guidance”. But the new body will only be effective if people can be confident that they really are getting impartial financial guidance. So it is vital to clarify what constitutes impartial guidance and, just as importantly, what does not.
The financial services industry does not provide impartial guidance: a commercial comparison website that takes commission from listed providers is different from a factual comparison table presented by an independent, impartial body that shows rankings based on objective criteria. Likewise, guidance on types of investment is different when it is intended to lead to a product sale from that offered by an independent organisation. Where the guidance is delivered by an organisation that stands to benefit commercially from it, there is an inherent conflict of interest.
It is important that people can be confident that someone offering them guidance is on their side and not employed to sell them something. This is clear in most markets: walk into a shop and the person behind the counter will be called a ‘sales assistant’, or similar. Go to look at new cars and you will talk to a ‘sales adviser’.
On the other hand, at your local bank branch you’ll probably talk to a ‘customer service adviser’ or a ‘relationship manager’. One of the many reasons that consumers don’t trust the industry is that ‘they are always trying to sell you something’. In one sense, the coy job titles don’t fool anyone. The problem is that if the customer service adviser is offering something called ‘guidance’, this muddies the waters.
Over a decade ago, the then regulator, the FSA, castigated firms for ‘misleading approaches’, saying “we identified a number of examples where the job title of the individual, or the approach being made by the firm, may have given the customer the wrong impression over the reason for the firm’s contact with them. In these situations, the customer may not have realised the firm was making a sales approach”. We hope this point isn’t lost on the FCA.
Parliament cannot mandate job titles. But it could use the Financial Guidance and Claims Bill to clarify in law that information and guidance intended to result in a product sale, however indirectly, should be called ‘sales guidance’. Otherwise firms will be able to continue to ‘dress up’ product sales as guidance, and trust in genuinely impartial guidance will be undermined.