This article is taken from Merryn Somerset Webb’s free weekly personal finance email, Money Sense. Click here to sign up now: Money Sense
How do you want to get your financial advice? If you are remotely like much of the population the answer is “for free.” And you’ll like the sound of Otto Thorsen.
Thorsen has spent the last 14 months working on a Treasury sponsored review into financial advice for the general public. His conclusion? That £49m a year be spent on establishing a nationwide service offering free generic financial advice – on matters ranging from mortgages to simple household budgeting – to all UK citizens. It would be called Money Guidance.
Our financial needs are really quite simple
I rather like this idea. Independent Financial Advisers are big on the idea that all of our lives are terribly different (or “complex” as they like to put it) and that we all need individually tailored advice but it isn’t really true. Most of us have remarkably simple finances. One current account, one savings account, an ISA if we are lucky, credit card debts if we are not and a pension.
So we don’t need complicated tax planning advice and we don’t need to learn about the derivatives markets or compare . We just need to know where to go to find the highest interest rates for our savings, how ISAs work, why we should pay off our debts before we start saving, and a bit about the pension system so we don’t end up getting too ripped off by the scores of rogue providers out there.
The truth is that my finances – and my financial priorities – are pretty much the same as those of most other thirtysomething women. So a website which I could visit regularly clicking on a button that said perhaps “female, 30s, mother” or some such and get updated information on childcare vouchers, the best ways of keeping pension contributions going during career breaks, a rundown of how to make a proper will and a review of the cash ISA deals on offer would suit me just fine.
A better use of £49m a year?
However much as I like the idea I’m afraid that I still think it might not be the best use of the £49m a year. Why? Because a huge percentage of the UK population is too numerically illiterate to make any use of it at all. A recent report from KPMG showed that more than a quarter of UK adults struggle to add up prices in their heads when they are out shopping and a fifth do not know that 8 is the square root of 64. 39% of fathers say they struggle to help their children with their maths homework.
This article is taken from Merryn Somerset Webb’s free weekly personal finance email, Money Sense. Click here to sign up now: Money Sense
No wonder most of the population is incapable of comparing credit cards or debt and no wonder most people haven’t a clue how their pension works. Given this might it not be better to hand the money over to maths teachers in an effort to incentivise them to actually teach their students something? Or failing that to the Every Child a Chance charity which aims to help children having difficulties with simple numbers as early as seven. “Adult innumeracy is one of the greatest scourges facing the country,” its chairman John Griffith-Jones told the Times.
I don’t suppose this is a particularly likely outcome given that to work to improve the teaching of mathematics in schools would be to admit that it is currently shockingly bad (which I wouldn’t do…) but I suspect that long run it would serve the country rather better than setting up an internet site to offer information that most of us are perfectly capable of finding elsewhere (MoneyWeek covers just about everything!).
Why avoiding the commission system is getting easier
In the meantime those of us that do want complex financial advice should accept that it isn’t free. I’ve written many times about the evils of the commission system – whereby you pay nothing upfront for financial advice but allow your IFA to help himself to often overly high commissions on everything you buy – so I’m pleased to be able to report that it is getting easier and easier to find advisers willing to take hourly fees instead.
We have our own list of the ones that have contacted us on our website (Fee only IFAs) but many more can now be found via the Forum for Fee Based Advice founded in November last year: it has 70 member firms and is lobbying hard (and quite rightly) for the FSA to create a market structure where by a clear distinction is made between what it calls “sales firms” where “product sales and commission income are the primary drivers of consumer contact” and “advisory firms” – “defined as those free from conflict of interest.”
They hope to have a search engine up and running so you can find a good adviser near you in the not too distant future but in the meantime you can contact the head of the forum John Lang at Tower Hill Associates.