Speech by Otto Thoresen at Westminster and City "Rethinking savings" conference

I am very pleased to be here, and to have this opportunity to set out my emerging thinking on the design of a national approach to Generic Financial Advice.

I want to use this occasion to focus on four areas:

First, to provide an update on my current thinking, and the next steps with the Review.
Then to discuss my latest thoughts on what a national approach to generic financial advice (which I will refer to as "GFA") might look like.
Next, to start to open the debate on the options for funding a national approach to GFA.
And finally, to reflect on the relationship between GFA and the FSA's work on the Retail Distribution Review.

But before I get into the detail, I think it is worth reminding us how we got to where we are today - indeed why I find myself standing before you here today.

It is, I think, widely accepted that financial capability in the UK - across all age ranges, and all social groups - is unacceptably low. This was, for example, demonstrated by the FSA baseline survey. At the same time, people are being presented with increasingly complex financial products, and are expected by the Government and employers to take more personal responsibility for their long-term financial well-being. Pension Reform and Personal Accounts are one example of this.

The Government concluded that there was a gap in the market for "generic financial advice" - that GFA I referred to earlier - which we will define for the moment as advice that is personalised, but not regulated. It is needed to help people find their way through the financial jungle and make the financial decisions that are right for them.

I was delighted when Ed Balls asked me to undertake a review into the scope for a national approach to GFA as part of the Government's long-term financial capability strategy. Perhaps I should also have been apprehensive. But this is an issue I believe in passionately. I remain delighted - though very conscious that we have a lot of work to do. But there are some things that I have been clear about from the outset:

First, this review is about how not if. The need is demonstrated, and pension reform and Personal Accounts will throw this into sharper focus. All the indications are that there is political will, commitment, and cross-party support for the initiative.
Second, I'm looking to build consensus for a workable design that can command the support of all stakeholder interests.
Third, this initiative should be seen as an opportunity not a threat. It could widen the market for Financial Services - and there is no inherent reason why industry could not be involved in delivery.

GFA is not a new concept. There is already a body of evidence and opinion on what, exactly, it is, and how it should be delivered. I wanted to make sure that we had collected together all the data, views and evidence, to use in building our blueprint for a national approach. So I issued a comprehensive Call for Evidence on 13 March.

The closing date for responses was 27 April, and we have received 97 responses. This speaks for the breadth and richness of the debate. I would like to thank those of you here who responded to the Call for evidence or have otherwise engaged with my Review.

We are now at the stage of building upon the evidence we have received, and developing hypotheses and models to be tested. This work will form the basis of an interim Report I intend to issue this autumn, and of my final report and recommendations, which will appear around the end of the year.

Today I want to share with you some of the key themes highlighted in the responses to the Call for Evidence.
First, the vast majority of respondents accept the need for a GFA service. The consensus is that it is both feasible and desirable. Moreover, this consensus is shared across a wide range of different stakeholders. And it includes cross-party political support.

Second, there is a strong feeling that we need to build upon the existing infrastructure of advice networks, not reinvent the wheel. This could mean we will require greater co-ordination of existing provision, and a measure of standardisation in the advice given. Having seen for myself first hand some of the work of existing agencies I know that a fantastic amount of good work is already being done. But also that even more needs to be done for the citizens of the UK.

Third, that whilst the service should be targeted to reach those who are most vulnerable to the consequences of poor decision-making, it should be available to all citizens. And I strongly agree that this should be the case.

Many of the responses also expressed concern about the term 'Generic Advice' and its definition, and to be honest I have some concerns there too. We adopted the phrase because it is a widely-used shorthand. However, I am sure that whatever service - approach - or body - emerges from our work, it will not use the words "generic financial advice" in its strapline. The man or woman in the street will not necessarily understand what we mean by "generic". And for the Financial Services Industry, the word "advice" is too closely associated with FSMA, and current FSA-regulated advice. The terms 'guidance', 'information', 'education' and 'coaching' have all been suggested, and I will make recommendations going forward about what I think is right. At the moment I feel that 'guidance' resonates well, but I am keen to hear people's thoughts on this.

Another common theme is that we will need to use a mix of mediums to deliver an effective service, and that one size will not fit all. Many responses suggested the workplace as a possible delivery point. The consensus was that a service would need to cover many areas of "advice" or, as I should perhaps say, "guidance".

Many who responded to the call for Evidence expressed views about the relationship between GFA and regulated advice. There is concern that a new service should not compete with the existing commercial market. I will touch on this later on.

So that is a headline summary of some of the themes emerging from the call for evidence. We have used these to shape other elements of our consultation process. I'd like to mention some examples:

We have held two workshops, in London and Edinburgh, with key stakeholders from the Industry, Government, Regulator, Local Government and the Third Sector. Essentially, we asked them to "play Otto Thoresen" for the day. Some of them commented that this made them realise what a complicated Review I was delivering! But some serious work was done which was very helpful in developing our thinking.
Second, we have a programme of visits underway to see different kinds of advice services at work - such as NHS Direct and Citizens Advice. We want to learn first-hand how they operate and discuss what the impact, on them, of a new GFA service might be.

I would also like to mention some other current work which is informing our thinking. First, our evidence base needs to include a thorough assessment of the costs and benefits of a national approach to GFA. So we have commissioned independent experts to provide us with a high-level cost-benefit analysis of delivering a national approach. The Resolution Foundation and others have already done much valuable work in this area, but our review needs its own evidence base. This will help inform our thinking as we move forward.

We are also looking closely at what subject areas a GFA service should cover and in particular how this should fit with the boundary of FSA-regulated advice.

And very importantly we need to consider our target market. This has been described as "those who are most vulnerable to the consequences of poor financial decision-making". That definition begs a lot of questions and we are doing work to drill down more deeply into this. In income terms we think we are probably talking about adults who are not predominantly dependent on benefits, up to those 'excluded' from current advice markets on the grounds of income and/or wealth. But there is no intention to exclude people who are not in the target market, from access to the service. But of course vulnerability to poor financial decision-making depends on more than income - it is affected by capability, social exclusion in its wider sense and psychology and attitudes.

And all this work needs to be given the reality check that comes from engagement with real people. So we will be setting up some consumer focus groups to see how our thinking resonates with the needs and perceptions of real-life potential consumers - what they want, how they want it, and what "it" should be!

So what might a national approach to GFA - a GFA service - look like? I set out a broad range of models in a speech to the ABI a couple of months ago. And I think that set of options holds good. To recap, the choice seems to lie between a model I'll call "monolithic" - with a single organisation providing all aspects of the service. And a second model, which embodies a fully decentralised and diversified approach - a small central body with advisory, strategic and accreditation function - but with actual services delivered by external providers. These could be existing third sector providers, employers, the Financial Services sector - anyone who chose to become accredited to provide generic financial advice. And in between there is a hybrid approach which could sit at any number of points between first and second models - with a central organisation providing strategic direction as well as doing some direct service delivery, but working in partnership with other organisations in Government, the Financial Services Industry and the third sector.

Whatever sort of organisation is built, branding and marketing will be crucial to persuading people to use it. This is a service that people need but may not know that they want. We will need to be very imaginative in the way we engage with people. This will not just be about big high-profile advertising campaigns, but about getting inside social networks. And about not using words like "pensions" or "retirement" too much - even when that's what we want to talk about - because we know that can be a turn-off.

One of the messages from both the call to evidence and our workshops, is that we should build on what already exists, not try duplicate it or compete with it. We should concentrate on gaps, not try to reinvent the wheel. This could argue for an approach which is closest to the decentralised model. But to make sure that we get the model right, over the coming months we need to pilot a range of delivery channels - face-to-face, telephone and on-line. We may also need to test different types of content and styles of delivery - for example scripted versus experienced advisor.

I am also keen to test what distance there needs to be between GFA and the FSA-regulated sector. We are currently examining if it is feasible to pilot GFA in a commercial environment. We want to see what the impact would be on the consumer, the commercial firm and the service itself.

Just to be quite explicit. A partnership approach to GFA is a real option. Partners could be commercial organisations, or not-for-profit. Partners could benefit from:

Increased traffic to and from their existing services;
Tailoring delivery to the clients and customers they already know, and new ones they want to help;
A design that minimises displacement and duplication; and also
Potentially, better value for money.

The benefits to customers would be familiar brands, familiar locations and focussed expertise.

In summary, we need to pilot a GFA service in a range of different environments. Whatever the outcome, I firmly believe that GFA is an opportunity for the industry. But securing the benefits requires engagement now with the pilots and discussions on funding. I urge you to do so.

That leads me, neatly, to funding. We are working on the basis that cost of any new service will be shared between the Government and Industry. Our Terms of Reference say that funding recommendations should reflect the benefits to stakeholders of increasing financial capability over the long term. This is important - we are not appealing to altruism but to the business case for ensuring that people are empowered to make good financial decisions. Confident and well-informed customers may be more demanding customers. But they are also likely to be more reliable creditors and more persistent savers. However we are aware that it is not enough to simply assert the case. This is one of the reasons we have commissioned an independent cost benefit analysis of potential models for a national approach to GFA.

Looking at the likely quantum of costs, Resolution has produced a range of options, which suggested that around £50m a year might be enough to make a strong start. That seems a useful basis from which to kick off the debate. In the long run, costs will depend on the nature of the service, and on the level of demand. And also on changes in the financial services landscape, and in underlying levels of financial capability.

But I should reiterate that nothing is set in stone. No decisions have yet been made on how funding mechanisms might work, and who will be asked to contribute. While I don't expect the idea of an industry contribution to be greeted with spontaneous delight, I would like to have an open and constructive dialogue on the issue. Given the parameters I have described, I want to engage on how an industry contribution could most fairly and efficiently be administered. Could joint funding be delivered though voluntary arrangements? Who ought to contribute? Are there existing mechanisms that could be used? And what controls should the funding mechanism be subject to?

Before I conclude, I wanted to briefly touch on the relationship between the FSA's work on the Retail Distribution Review and the work I will be taking forward on GFA. Clearly we need to ensure that we work with the FSA to ensure that way we deliver fits with the activities of the Regulator.

However, it is important to remember that GFA is not a sales process. Some people have asked whether GFA would provide a portal into 'primary advice', should the FSA decide to move this forward as part of the RDR. So it may be helpful if I provide a little clarification here. It may be that a consumer will go on to seek a product solution after using the service. But they may equally decide that debt advice or another solution is right for them.

I also want to touch on what we mean when we say that GFA is "not regulated". We have used this expression as a simple shorthand to distinguish GFA from 'FSA-regulated' activity. However, I do not envisage recommending a service with no governance, control, or standards - I am most definitely not advocating a free-for-all!!

In conclusion, four or more months into this project I remain optimistic, - though very mindful of the issues that are still to be resolved and the work I have to do. However:

The consultation process has very much supported the need for GFA, and my remit of "How Not If"
My Review has now firmly moved from evidence gathering to undertaking detailed and robust analysis.
As we move forward, in parallel with service design, I want to continue to engage with the issue of funding. It is time to dip below general presumptions and talk about what will work.

Finally, I want to return to why I am doing this. I passionately believe that a world with financially competent and confident consumers - who have access to advice that gives them tools to make effective financial decisions - is a world that is better for them, - and an environment that can be better for the Industry. I hope, and believe, that we can all work together to build the structures that will deliver what is needed.