Personal accounts have made the need for good impartial advice more urgent, as the current system is not equipped to deal with the eight million estimated extra savers, claims Otto Thoresen.
In his speech at the Association of British Insurers (ABI) conference ‘Thinking for Tomorrow’, Thoresen, chief executive of Aegon UK, warned poor capability and poor decision making or inaction by consumers is storing up problems for the future.
He says consumers are not equipped to make complex financial decisions and as a result individuals are failing to make their money work; the industry is failing to retain a large section of customers and the country as a whole is storing up problems for the future.
Thoresen is currently leading a review into the design of a national system of generic advice for all aspects of finance, although he says the proposed implementation of personal accounts in 2012 has “made the need for good impartial advice more urgent”.
He adds: “I suggest the current regulated service of advice will not be equipped in either nature or scale to deal with this [introduction of personal accounts].”
Although he admitted his interim report – which is scheduled for the autumn ahead of his final report at the end of the year – will set out a range of approaches with a view to narrowing down the options, and will include details of processes including the “hand-off to regulated advice where appropriate”.
Thoresen reveals he has received 90 responses to his ‘Call for Evidence’ which closed on 27 April, which has shown divergent views over whether a new system of generic advice should build on existing services or be a completely new body, although either way he believes any system will not be called generic advice.
He says: “I believe designing a national approach is possible, although there are some issues including the title – I doubt these words will feature in any future advertising campaigns.”
Thoresen also recognises there are issues about where the new system will sit as it will be “personalised but not regulated advice”, but he points out it will “stop sort of regulated boundaries of recommending products”.
He adds: “This is something we need to get right, but it is not something I’m going to agonise over, this is a behind-the-scenes debate. Instead we need to build for the consumer a workable design.”
In addition, Thoresen outlined what the new system could possibly look like, suggesting the two extremes would be either a monolithic approach which would be a new institution in a all aspects positioned as part of , or on the borders with, government, or a decentralised model, with external bodies taking on certain roles, with a range of models in between.
He says it is assumed the cost of funding the new system of advice “will be shared between government and external partners”, and argues the industry needs to focus on the benefits as well as the costs as there is a “good business case for ensuring people are empowered to make good financial decisions” because they will become reliable creditors and more persistent savers.
However, he admits he has “no idea yet” how this will work or the cost of the model as it will depend on the design of the model, although he says the Resolution Foundation’s cost estimate of £50m a year would be a “useful start”, as the costs will depend on the level of service provided and the demand.
Thoresen says: “My remit is how not whether it will happen, and the industry as a whole has two choices. Either engage with the design and build and take the reputational and economical benefits, or disengage and receive another reputational hit and make smaller business gains in the future.”
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