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Financial Services Bill

I shall say a few words about Clause 6 stand part and Schedule 1 stand part. Even at this late stage, I think that the Government have got wrong the shape of what they propose. I hope that I can convince them that there is a reason for reassessing their approach to this important topic. Before I do so, I declare an interest: I am a non-executive of a company which provides compliance training and fund management services to independent financial advisers. The Committee should be aware that it is directly in the area which we are discussing today. The company is regulated by the FSA and I am an authorised person. Clause 6 is headed: ""Enhancing public understanding of financial matters etc"." With that, no one could disagree; it must be a very good objective. However, once one moves from the strategy, as expressed in that strap line, to the means by which it should be carried out, one becomes very much more doubtful. As my noble friend Lady Noakes said, I, she and others on this side of the Chamber tabled a number of specific amendments to address these points which we have been unable to discuss. However, I should like the Government to take on board three or four major points in relation to their approach. The first is my long-standing concerning about the title, "consumer financial education council". "Consumer" conveys the wrong basis for the terms of trade in this important area. The Minister’s people will no doubt look up the definition of "customer" and "consumer" in the dictionary and say that they are very similar, and that it is a distinction without a difference—I can almost see the speaking note from here. But—and it is a very big "but"—there is a difference in the real world between customers and consumers. A consumer has a very short, transitory relationship—you consume toothpaste or soft drinks, for example. A customer has, or expects to have, a longer-lasting relationship, based on trust, professional standards and delivery of a service over time. You are not a consumer of the services of a law firm; you are a customer. Paragraph 10 of the Explanatory Notes to the Bill emphasises the need for and importance of a long-term relationship. To make this shift, to effect a subtle but important change of public attitudes towards this sector of the market, we need to change the terms of trade. The Minister will be aware of the enormous amount of work that the FSA has done on the Retail Distribution Review, or RDR. That very worthwhile piece of work, which has been a long time in gestation, will be endangered, even have a stake driven through its heart, by the proposals before us. At its heart, RDR proposes the creation of a new profession of financial advisers, with levels of competence and ability demonstrated by the passing of examinations. The scope will range from simple advice focusing on basic needs, perhaps given by a single person, to complex, multidisciplinary advice, available only from a firm employing different specialists. Just as one does not expect a single solicitor to be available to advise on property, contracts, estates and wills, and litigation, so one should not expect a single person to be able to advise on inheritance tax planning, pensions, mortgage protection and so on. These firms will have customers and long-lasting relationships. They cannot and should not properly be described as consumers. There is the other side to the coin: we need to find ways to attract new, younger blood to the financial advisory profession. It is well known that the average age of IFAs is the mid-50s. It is expected that between 20 per cent and 30 per cent of them will be unable or choose not to achieve QCA level 4 by 2012, when, under RDR, it will become obligatory. We will therefore have a shortage of advisers at a time when saving will never have been so important for the reasons that the noble Lord, Lord Oakeshott, mentioned. Why has this been so? It has not been seen as an attractive profession for a younger person to work in. Using and continuing with the consumer-type terminology does not help to create that profession. We need to assist in the transformation of this IFA industry, creating a new profession that attracts competent, dedicated people to work in it, with proper career prospects, so giving confidence to investors and savers so they will be well looked after. That is my first problem with what the Government propose. My second problem is that the tasks of the new body are wrongly defined. New Section 6A(2) in Clause 2 says: ""The consumer financial education function includes, in particular … promoting awareness of the benefits of financial planning … ""promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services … promoting awareness of the benefits and risks associated with different kinds of financial dealing"." All that is perfectly and properly worth while, but to use an educational comparator, this is an A-level syllabus. As my noble friend Lady Noakes made clear, we need to start at least in parallel at a much more basic approach, which is what we were going to try to encourage the Government to do in our amendments that we never got to discuss in Committee, because it was cut short. We need to discuss the management of debt, the control of personal spending, living within an income and protection against disaster; all those things need to form part of the council’s remit. At the moment, it is starting at far too high a level and is not going to tackle the really important part of the market. A couple of years ago I talked to the chief executive of a major life insurance company who said that at the height of the boom, the persistence of a pension scheme—that is, the time that it lasted, usually a pension scheme and associated life insurance—was four years. People were putting money into a pension and then deciding what they should do, taking it out and putting it into a holiday, extending their house, moving or whatever else. Those are the sorts of issues that we should be tackling, because nobody can possibly have a satisfactory investment in a pension if they think that they are going to roll it out after four years. It is a long-term investment. Nowhere in the terms of reference of this body do I see sufficient attention to the basics. I see lots of stuff about much more sophisticated arrangements but nothing about the real hardcore of basic financial knowledge and education for people. Instead, we have castles in the air. On the body itself in Schedule 1, I recognise that the Government have tabled some amendments, for which I am grateful. However, despite what I see—and maybe the Minister can reassure me on this—the FSA continues to have apparently untrammelled powers of appointment to the consumer financial education body, with the exception of the chair or chief executive, which requires Treasury approval. While Amendment 59, referred to by my noble friend, has some relevance, there is nothing there about geography. This could be a very M25-centric body, unless we had people drawn from the regions. There is nothing about the type of experience that people should have and nothing to ensure that this is a sufficiently broad-based body, which will command and give consumer confidence and confidence within the industry. If the Government read through the Financial Services and Markets Act and looked at Clause 9 on the practitioner panel, they would see it lay down the sorts of people whom the authority must appoint—in this case, the FSA, including, ""individuals who are authorised persons … persons representing authorised persons … persons representing recognised investment exchanges, and … persons representing recognised clearing houses"." There is a much clearer way of ensuring that the body is able to represent and make an effective contribution. It goes further in Clause 10, on the consumer panel, which requires that: ""The Authority must secure that the membership of the Consumer Panel is such as to give a fair degree of representation ""to those who are using, or are or may be contemplating using, services otherwise than in connection with businesses carried on by them"." So a great deal needs to be done on the structure of how the panel is set up. Finally, there is the question of reviewing the work of the body itself. I am disappointed that the Government have not written into the Bill the need for it to adhere to the principles of good regulation: that it should carry out its work—as the Better Regulation Task Force manuals say—in an efficient, effective and economic way. To summarise, I understand what the Government are driving at with Clause 6 and Schedule 1. I support the broad brush but, as shown by the title, it is the wrong approach and will not help with enforcing and carrying through the RDR. It has inappropriate terms of reference and, potentially, an unbalanced structure within the body itself. The approach needs a lot more work to make it effective. I hope—not with much confidence—that the Government might, even at this late hour, think again about how this body could be made better, because it is so important for the future creation of an effective savings culture in this country.