«FUTURE» EXCLUSIVE
A CHILD OF THE REGULATOR
CP: You call it financial capability. And the value of financial literacy is also part of this? Capability. Yes. We see financial capability as the combination of literacy, the ability to understand financial issues, your motivation to get the best possible deal, manage the results you want to get, and financial inclusion (the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society).
Carl Pheasey, Head of Policy at the Money Advice Service (MAS UK), explains the key goals of financial capability development in the UK
CP: Who is your Supervisory Body? That’s a very good question. We do not provide regulated financial advice. So, actually, we only provide general guidance to consumers. So we are not caught up by the requirement to be regulated as we don’t provide direct product recommendations to consumers. We are much more about general money advice so we do not have a Supervisory Body per se. We work closely with the Financial Conduct Authority that approves our budget and our business plan. And the Treasury Department, the Central Government Department responsible for financial services issues, also signs off our business plan. So, we work ultimately to make sure we are not doing anything that would put us on any wrong side, and that keeps us on the straight and narrow.
much a junior partner in the relationship. The FCA is an organisation of two or three thousand people with a huge budget and massive capabilities. We are an organisation of one hundred and forty people with a budget of some 10 per cent of that of the FCA. CP: So the initiative was born in 2004 but the government body was formed after 6 years? Yes. I think that was longer than it needed to be, and it was possible to do it in a different way. And, of course, these things are always imperfect. At the beginning they placed more attention on financial capability and increasing people’s inherent ability rather than providing a big range of nation-wide services.
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Last year the MAS launched a UK-wide financial capability strategy, which is not only about what the Money Advice Service does. This is about bringing more consistency to the entire financial sector
PHOTOGRAPHY: KATE SHCHEGLOVA
FUTURE: How was the Money Advice Service set up as an organisation? CARL PHEASEY: It was quite a long process that happened in the Government and realistically commenced around 2004–2005. It was really a brainchild of the Treasury Department. But the organisation has only existed in its current form since 2010. The Government had a view that the financial services market especially was not robust in a number of ways, not by virtue of things going wrong with it, but because there were inherent imperfections, as it is in a complex marketplace, especially when you’re dealing with increasingly complicated financial products for consumers. The providers of those products understand them very much better than consumers could ever be expected to. That thought, I think, had began to form in the Government’s collective mind that there was a need for the state to create some sort of Service which can improve consumers’ ability or capability to get a better deal in the financial services market, ultimately with the aim of improving those market functions by driving competition and innovation in ways to best serve consumers. In 2010 the Government brought in legislation to create a new organisation called the Consumer Financial Education Body (CFEB). The CFEB was established by the Financial Services Authority (later superseded by the Financial Conduct Authority, FCA) as required by the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2010), and which came into existence on 26 April 2010. The body has a mandate from Parliament, with all-party support, to develop consumer financial education in the UK and is responsible for enhancing the public’s understanding and knowledge of financial matters and their ability to manage their own financial affairs. 134 FSA staff in the FSA’s financial capability division were transferred to CFEB in its first year. On 4 April 2011, the CFEB was rebranded as the Money Advice Service, MAS. So, the MAS is a child of the Regulator. We are very
CP: How is the CEO of the MAS chosen? We have a CEO, non-executive Chairman and the Board. The CEO and Chairman are appointed by the Financial Conduct Authority with the approval of the Treasury. And then the Financial Conduct Authority approves appointments to the Board which are made by the Chairman and CEO.The appointments are reviewed every three years. So our Chairman is currently in his second term, and our CEO is also in her second three-year term. And they are also accountable to Parliament indirectly. We submit our annual report to Parliament. We also report to the National Audit Office which is the National Public Spending watchdog.
The Money Advice Service is an organisation that provides freeof-charge advice on money and financial decisions to people in the United Kingdom. It is an independent organisation whose statutory objectives are to enhance the understanding and knowledge of people about financial matters (including the UK financial system); and to enhance
BRIEFLY ABOUT THE MAS their ability to manage their own financial affairs. The service was launched in April 2011, superseding the Moneymadeclearbranded service provided by the Consumer Financial Education Body. Prior to 2010, the service had been a division of the
CP: What is your annual budget? The total budget for the 2016/2017 financial year is £75.1m. We break this budget into two parts: the Money Advice part of £30.1m covers the provision of our website and the telephone service, while the Debt Advice part of £45m is used to fund the National network of providers who give advice to people who have significant problems and debt. CP: Do you have a marketing strategy and which marketing tools do you use? It worth saying that historically we did a lot of marketing in order to set up the Service. This is especially necessary in a very dynamic market where there are a lot of providers of financial information. If you are a sole independent provider and you have not got a product to sell, you need to get people to your website, you need to build awareness. So, in the first few years of our service (2011/2012 and 2012/2013), I think we probably spent about £40m in total. Marketing initially included some television advertising, advertising on transport, at train stations and also paid research activity, etc. We also had National TV advertising. But in the last year we have radically reduced the amount of promotional marketing we do. So the majority spent is actually on maintenance of information and a very comprehensive website.
Financial Services Authority (later rebranded to FCA). It was set up by the UK Government and is paid for by a statutory levy on the financial services industry. The service has an independent Chairman and board appointed by the FCA. In March 2016,
HM Treasury announced that the service would be abolished and replaced by a smaller advice service, which will add more value for consumers. The MAS spent about £80m last year, but much of its income came from an industrybased levy.
Something more than a thousand pages online. It gives a lot of details on a wide range of financial issues that needs a lot of work to ensure it actually helps. So, we employed an expert on financial matters as well as a content expert to provide web content that engages consumers. And we have a development team which does research and creates tools to help people make financial decisions. That is quite expensive so, it’s a year-on-year component of what we spend. I think this year we will probably spend £10m on those sorts of activities. Also what we are doing this year, is we’re putting £7m into the “What Works Fund” to uncover which interventions would work better, and what types of activities are actually more effective in improving people’s financial capabilities. Within this project we are funding a range of organisations - principally charities but also potentially universities, and possibly some companies to do trials. So, in the future we can commission those activities on a large scale. One thing I have to say is that we are actually going to exist in 2018 and after that we will be replaced by a newer organisation which will not have its own website and instead will procure services from other organisations. So this is a soft concept which we’re changing.
«FUTURE» EXCLUSIVE
Money guidance & financial capability address market imperfections The MAS is putting £7m into the “What Works Fund” to uncover which interventions would work better, and what types of activities are actually more effective in improving people’s financial capabilities
service. Our staff is mostly based in London (140 experts). What we do is nationally available over the phone service which is run out of the office from London. The phone service staff are not included in that number; they are an additional 40 people who are employed by an outsourcing service. Also we have a single person in each of Wales, Northern Ireland and Scotland to represent the MAS. And Data advice services are provided through 300 organisations which we fund UKwide. So that would itself include over a thousand data advisors who are not our employees but who are funded by the MAS. CP: Could you provide more details about your advice services
providers that you fund across the UK? There is the big organisation called Citizens Advice (or better known as the Citizens Advice Bureau up until 2015), a network of 316 independent charities throughout the UK that gives free, confidential information and advice to assist people with money, legal and other problems, which is a very wellknown and respected nationwide advice network. It’s a combination of volunteers and paid staff. They have offices throughout the country. They’re providing a number of services and different types of advice for consumers on State Welfare Benefits, on education and a whole wide range of issues. And we pay them to ensure that there’s provision
of data for financial advice on a UK-wide basis. As I mentioned earlier, in 2016/2017 we planned in our budget for the Debt advice part some £45m in total. And that delivers this year, we think, over 380K individual data advice sessions to help over 380K people solve their problems.
Money Advice Service – who we are For people facing unmanageable debt, we help them access free, high-quality debt advice
The Money Advice Service was set up by Government We are funded by levies on the financial services industry
We give free, unbiased money advice to help people make informed choices
CP: Does the MAS have branches across the country? We are a London-based organisation providing a national 0 0 3 / F I N A N C I A L C A P A B I L I T Y S T R A T E G Y / T H E U K E X P E R I E N C E
We are independent and impartial We co-ordinate efforts to improve financial capability across the UK
Source: the MAS, 2016
PHOTOGRAPHY: KATE SHCHEGLOVA
CP: What would be your recommendations on how effectively to build consumers’ awareness of your services? I think there’s no clear answer to that. I think we’re still struggling with what is the right way to engage consumers. But one thing we’ve seen over the past couple of years is a massive increase in traffic to the website coming from mobile devices. That is a key factor in how we’ve optimized our site. So, it’s now fully responsive to being viewed on mobile devices. And there’s a push from the Government now on the creation of apps to help people to decide financial issues. And that is something I guess we will have to think about in the future. In the beginning we used Google Ads, but we don’t do that anymore because we have a very successful website which gets 26 million customer hits a year. It’s a big site with a lot of incredible resources. We have good visibility, although in any case a lot of our effort goes in maintaining our position in Google Search. So, when someone is searching for mortgages, loans or whatever financial issues, they can reasonably expect to find us in the top results, however, for most financial search terms, our results will be hit by some paid results which are focused on selling financial products to consumers. We’re always battling against that, and in the context of not being able to spend a lot of money on marketing, we will increasingly struggle to compete with that, I think.
CP: Do you work mostly on prevention or solving existing consumers’ problems? We provide money advice in two ways. On the one hand, Data adviсe is about helping people who’ve got into trouble, who’ve borrowed too much etc., and who are in a crisis. So, Data advice items are less about improving people’s understanding and more about getting their services right, and ensuring that they’re effective, and helping people to stay out of debt. On the other hand, we work on prevention by providing money guidance to improve people’s quality of life. One of the most popular tools on our website is helping people to get a better deal on energy, bank accounts, financial products, minimizing shopping costs, etc. We created that tool to address imperfections in the financial services market. As a result, we want to see that people are becoming more financially resilient with more savings and no debts, able to solve their own problems. Also the key direction for us is financial education. We are increasingly working on many activities focusing on children and young people from the start. It is much better to improve people’s financial capabilities and their understanding of financial issues before they are economically active, because there are then fewer chances of later making a big mistake.
Market failure
Example
Remedies (partial | full)
Information asymmetries
Differences between pension savers’ and pension providers’ understanding of longevity risk
“Wake up packs”; regulatory requirements for provision of impartial information; pensions guidance
Myopia
Failure to accurately estimate future expenses and financial needs
Getting people to think about and plan for the future
Coordination failure
Failure to manage money, e.g. irregular incomes, unexpected expenses
Active promotion and provision of budgeting practice. Debt advice
Overconfidence
Older consumers most confident of ability to manage money, but exhibit amongst lowest skills and knowledge
Targeting of guidance and information, and promotion of regulated financial advice
Underconfidence
Lack of confidence to make financial decisions results in detriment
Financial Capability programmes building skills, knowledge and confidence Source: the MAS, 2016
CP: You mentioned that you have a partnership with Citizens Advice. Do you have any partnerships with any other kinds of institutions? We have around two hundred active partnerships with a range of government and non-profit organisations ranging from local authorities to the National Health Service, large charities, financial services providers including most of the big banks, building societies, and insurers for whom we provide digital tools which they can use on their websites, to help people make better decisions. And also we work with partners whom we call lifestyle and media partners, which engage with consumers. For example, the BBC, which is a trusted messenger for most consumers in the UK. And also retailers and supermarket chains have an interest in developing the relationship with their customers. That’s all an opportunity for us because it means we can get our tools onto most retailers’ websites and to become more visible to
consumers. Also, from last year we took on our role of coordinating financial education in schools for children. CP: Do you have a developed financial literacy strategy? Last year we launched a UK-wide financial capability strategy which covers the scope of everything we do. But this strategy is not only about what the Money Advice Service does, this is about bringing more consistency to the entire financial sector. Hundreds of organisations are interested in these issues. So, one of the things we know is that many banks and insurers are spending large amounts of social responsibility money on the provision of educational activities for consumers. For most of it, we have no evidence whether it actually works or not. So, the financial capability strategy will drive more commitment to evidence-based practice. Kate Shcheglova, editor-in-chief «Future» magazine