Speech by the Financial Secretary to the Treasury.
In these modern times, many consumers understand the importance of saving today, but do not have sufficient knowledge to make the best investment decisions for tomorrow.
As a Government we feel there is a real need to encourage saving, support pensions, and create a culture of personal responsibility.
High-quality, independent, professional advice has a key role to play in achieving this objective.
Gone are the days when a person would have just one job for their entire life; one pension scheme managed by their employer; and only one source of income in retirement.
Now it is far more likely that someone will retire with five, six, seven or more financial assets. Whether they are ISAs, savings accounts, bank deposits, equity in their home, a privately managed pension schemes, defined benefit or defined contribution, stocks, shares, bonds - I could easily go on.
And while freedom, choice, and competition across financial products is something to be applauded, it does come with its own drawbacks.
Choice can breed confusion.
And competition can imply complexity.
Consumers need support - they need professional, impartial advice. And a good financial advisor is a great place to start.
When buying a house, it is wise to talk to a surveyor; when running a business, you need to employ an accountant.
So when making important financial decisions, it makes sense to obtain high-quality financial advice.
Increasing flexibility to promote savings
As a Government, we understand the challenges people face when looking to save or plan for retirement.
That is why we are taking forward our own reforms - to improve the options available to savers, and ensure that everyone can find a solution that’s right for them.
In the June Budget we announced a number of measures to support these aims; including the Annual Financial Health-Check, and an end to the outdated requirement to purchase an annuity at 75. We are currently consulting on removing the Default Retirement Age from April 2011 so that those who want or need to work longer can do so more easily.
Older workers bring with them a wealth of talent and experience. They have a vital contribution to make to our economic recovery and long term prosperity.
It is our every intention to give people more flexibility to work, to save and to plan for retirement - amending the legislation that unnecessarily ties their hands.
Increasing the demand for advice
Widening people’s horizons - offering more flexibility - can, however, give rise to greater complexity.
We need to ensure that individuals not only have greater flexibility and choice, but also the ability to exercise those choices confidently and effectively.
Every path has its puddle; the trick here is to seek advice that avoids getting your feet wet.
Our actions will not only extend the range of financial options available to consumers. They will also help increase the demand for financial advice. We need, therefore, to ensure that the accessibility of advice improves in tandem.
It is our intention for the new Consumer Financial Education Body to roll out the National Financial Advice Service - a free and impartial source of financial information. Our Annual Financial Healthcheck will be a key part of this.
Our intention is for NFAS to work in partnership with financial advisors - not in competition. While NFAS will talk consumers through their options, it will leave advice on specific product options to professional advisors. I believe it will open the eyes of consumers to the benefits of advice and proper planning for financial futures.
Role of Financial Advisors
I know that access to high quality, independent, regulated advice is vital to improving confidence in the financial sector as a whole.
And after recent events, trust in our own financial institutions is at a low.
While financial advisors did not cause the global economic downturn, you do have an important role to play in rebuilding trust across the financial sector.
Consumers need to have confidence in their advisers; to know that they are well qualified and putting their interests first.
I believe that the FSA’s Retail Distribution Review will help achieve this.
I understand that many of you have concerns about the work the FSA is taking forward; indeed, I have received quite a bit of correspondence on the matter.
But high minimum standards, improved levels of service, and a more transparent advisory system can only be good for the industry as a whole.
It will give consumers a better understanding of the services you provide, greater assurance in the advice you offer, and create a more level playing field for you to showcase your talents.
The RDR’s professionalism rules will ensure that all financial advisers meet a minimum qualification and ethical standard. And this standard will be maintained through Continuing Professional Development.
It will give consumers confidence that their financial adviser is the best person for the job.
Almost half of you already meet the qualification standards required by RDR. And there are still two years to go until the RDR is formally introduced.
I believe that fresh new talent will be attracted to an industry with high professional standards. Take-up for financial planning degree courses is increasing and research has found a clear upward shift in qualifications.
Increased professional standards for financial advisers will create a new status for the profession. Advisers will be able to step away from past criticisms and be seen as a more integral part of the financial services industry.
Consumers need to understand the value that good financial advice can add.
And a more transparent market - where advisors compete on cost and quality, not promises and hearsay - will only serve to achieve this.
That is why the RDR is looking to change the way financial advisors are paid - moving from commission-based pay, to fees. Making the cost of advice clearer to customers.
A world class advisory sector requires nothing less than the highest quality professional standards; to ensure that financial advisors are at the top of their profession. So that your success is also the customer’s success - the two are mutually reinforcing.
Future of financial advice regulation
And this success will need to be underpinned by a well structured, well regulated market.
So alongside the new Prudential Regulation Authority, the Government will establish the Consumer Protection and Markets Authority, a dedicated conduct regulator, supervising the relationships between every financial institution and their customers, whether they are based on your local high street or have a sky scraper in Canary Wharf.
It will be independent of Government, and governed by a board with a majority of non-executives, appointed by the Treasury. Non-executive Directors will have the necessary skills and background to represent both consumers, and market interests.
The CPMA’s primary objective will be ensuring confidence in financial services and markets, with particular focus on protecting consumers and ensuring market integrity.
Appropriate regulation is vital to instilling confidence in financial services; protecting customers’ interests; and ensuring clean, efficient markets where both retail and wholesale customers can engage confidently and with the degree of protection appropriate to their needs.
But it is also important that the cost of regulation remains proportionate to ensure that consumers in both wholesale and retail markets have a choice of providers and advisors
I know we do neither the industry nor consumers any favours if we stifle firms through overly prescriptive measures or ill thought out reforms.
Winston Churchill once said that ‘if you have ten thousand regulations you destroy all respect for the law’.
Irrespective of the number of regulations, we need to ensure that all regulation is proportionate and appropriate. We want to see a regulatory approach based on judgement and discretion, so that we tackle what’s important.
Regulation should be seen as a platform on which to build - and i am confident that the CPMA, with its single objective and clear focus, will provide such a platform.
This applies just as much to EU regulation, as domestic.
After a long wait, we now expect progress from the European Commission on the Packaged Retail Investment Products - PRIPs.
The aim of PRIPs is to create a level regulatory playing field across the EU, for the many different types of investment products that exist.
Although MiFID will be used as the blueprint for this initiative, we need to understand how a more standardised approach will work in practise and how it will affect the different components of the investment industry.
So while much of the domestic focus has been on the RDR, the potential impact of PRIPs is of equal interest.
We will work with our European colleagues to ensure that PRIPs does not impose unnecessary burdens or adversely impact measures taken in the UK to ensure investor protection, promote saving and encourage investment.
In Britain, we want to see the development of a more responsible savings culture; one in which people plan confidently for their future, and are better able to realise their plans.
We want our economy to grow from a solid investment base, not debt-ridden foundations.
And we want to see good financial advisors play a more prominent role in our society, to help us achieve these ambitions.
As a Government we are taking action to improve the quality and stability of our financial services sector.
But we cannot do this alone - we will need your help, your advice and your expertise if we are to get our reforms right and the best outcomes for our consumers.