Financial Advice and Guidance: Consumer Market

(Limited Text - Ministerial Extracts only)

Tuesday 9th January 2024 Westminster Hall

[The Economic Secretary to the Treasury (Bim Afolami)]

I thank my hon. Friend the Member for West Worcestershire (Harriett Baldwin) for securing today’s debate. I recognise her long-standing commitment to the issue that she has outlined to the House. I am mindful that, as one of my predecessors and Chair of the Treasury Committee, she is watching me keenly to make sure that I do the right thing. I am very glad that she broadly supports the proposals and strongly supports the Edinburgh reform. I want to make it clear that I, as Economic Secretary, share her ambition to ensure that consumers can access the support they need to make good financial decisions. I welcome the opportunity provided by this debate to outline how I intend to achieve that.

My hon. Friend mentioned the importance of the timing of this debate and the proposals. This has never been more important. Too often, people in this country, particularly younger people, feel as though they do not have enough of a stake in our economy and society. They want to make their money work hard, but they do not know where to start.

On the changes to our pension system, she mentioned the success of auto-enrolment. Advances in technology and the cost of living instabilities abroad are just two of the reasons why we increasingly need a financially savvy population. She also mentioned pension freedoms for older people, which give them a lot of economic freedom to make these financially important decisions.

Before I get on to the changes, it is worth recognising the support that current guidance and advice services can offer consumers; those should not be ignored. The Government established the Money and Pensions Service in 2019 to simplify the financial guidance landscape and provide support to consumers on important issues such as benefits, budgeting and pensions. The Government work closely with the FCA to ensure that the financial advice market works well for both firms and consumers. There is always more to do, but I believe that we have made significant progress.

In 2012, the retail distribution review drove up the quality of financial advice, and in 2016, when my hon. Friend was the Minister, the financial advice market review helped firms to support more consumers. However, she is right that further action is needed. Despite the progress made, I share her concern that many consumers still struggle to make critical decisions about saving and investing or accessing their pensions, and to access the right help and support. That is why, in 2022, the Chancellor announced that the Government and the FCA would commence a joint review to examine the regulatory boundary between financial advice and guidance. The review provides a key opportunity—probably the greatest opportunity in the last decade—to rethink the way support is delivered for consumers and to help close the advice gap.

In December, as part of the review, I was pleased to announce that the Government and the FCA had published a joint policy paper setting out the three initial proposals, which it is worth saying can be taken either alone or together. We are still thinking about these proposals. We are developing them and we hope to get them delivered as best we can. They represent real regulatory reform, and we need to act.

First, the paper considers whether changes to the FCA’s regulatory guidance or new rules would allow regulated firms to move closer to the boundary and provide more support for their consumers. One difficulty is that we need to be able to, within the existing rules, give firms more confidence that they can move closer to this boundary and give advice and support in ways that do not require legal changes; they just need to be given the confidence to do that. For example, we need to give greater certainty to firms that want to contact a customer holding savings in cash to warn them of the detriment of inflation, and to pension providers that want to proactively warn customers at risk of receiving an inadequate income in retirement. We need to help firms to give better support to customers in such ways.

Secondly, the paper explores a new and innovative type of support that would allow firms to suggest a product or course of action to their customers. That suggestion would be tailored to targeted group of customers and would be presented as appropriate for “people like you”. Take again, for example, a customer who is saving into a pension at a low rate that could lead to an inadequate income in retirement. Under the second proposal in the paper, based on simple and limited data points such as age and size of the individual pot, the pension provider could offer a straightforward piece of advice that the customer could increase their contributions to a specific rate, depending on their personal circumstances. I am glad that my hon. Friend said that this second proposal was a key proposal.

The final option explores a simplified advice regime that would allow consumers with a specific need to access low-cost financial advice. It is worth saying again that the cost of advice is prohibitive for a lot of people. What we are proposing is not just a regulatory change; we need to make sure that all the options are commercially viable for more people. This final option would provide consumers with a recommendation personalised to their individual circumstances, based on a more limited approach to fact-finding than full holistic advice.

[Harriett Baldwin]

I thank the Minister for summarising the three proposals again. Could he clarify which of them would need a vote in Parliament, and will he commit to bringing forward any necessary legislation with urgency?

--- Later in debate ---

[Bim Afolami]

I thank my hon. Friend for that point. I will need to come back to her on whether a specific vote on primary legislation is required. I think secondary legislation would be needed to deal with certain aspects of the proposals, but I will follow up and write to her on the detail, and I commit to moving forward as quickly as I can. With a year left of this Parliament, I want to get this moved forward as far as possible. I am passionate about doing that.

Under the third proposal, for example—it is important to get these examples on the record—a consumer who has just inherited a small lump sum of, say, £10,000 or £20,000, and wants to invest it but does not know where to start, could receive simplified advice that includes a suitability assessment and a personal recommendation as to how they should invest that sort of inheritance.

The paper will allow us to receive input from stakeholders to inform the details of each proposal as we progress this year. Other things are going on in this area—for example, the NatWest share sale that the Chancellor announced in the autumn statement, which will hopefully be taken forward later this year. With that sort of retail offer to the public, it is very important that we have as good a provision for support, guidance and advice for ordinary people as possible.

I am committed to using my time in office to build the skills and trust of UK consumers to bring back the confidence in our financial system that so many people lost following the financial crash. I am confident that with further input from industry, the hon. Lady, Members of this House and consumer representatives, this paper can help to lay the groundwork for a new regulatory framework that will help firms manage risk, help consumers make good decisions and ultimately build a thriving and healthy financial services sector for us all.

Question put and agreed to.