Selling saving to the people

The Government’s proposed Generic Financial Advice (GFA) service – which would offer everyone in the UK basic financial advice – could be introduced as early as next year, after a Treasury-commissioned review found last week that it would be a cost-effective way to improve the way people manage their money.

The GFA scheme has been broadly welcomed by the financial services industry, but experts believe the role of advertising will be crucial to its success. It could be backed by a marketing war chest of up to £30m.

A report from Aegon UK chief executive Otto Thoresen, who is designing the scheme for the Treasury, says it would cost the Government and the financial services industry between £40m and £80m per year to run – but that the financial benefits would outweigh this by a factor of 3.5.

Thoresen adds: “We have got a good sense that this is doable and that free generic financial advice will bring benefits to the Government, the financial services sector and people in the UK.”

The GFA service is being piloted in the North-west, South Yorkshire, Staffordshire and London. If it were rolled out across the whole country, it would be available to everyone, but aimed particularly at the 7.5 million people considered to be the most financially “vulnerable” in the UK.

Thoresen’s report says that the service should “empower individuals to make decisions”, but “cannot and should not” recommend specific products from particular financial providers. It should instead aim to explain jargon and help people manage their budgets.

Recent research from Experian’s CreditExpert suggested that 70% of Britons do not know what effect a 0.5% interest rate rise would have on a £100,000 interest-only mortgage.

Scottish Widows customer and brand marketing director Mike Hoban says: “Lots of people understand financial planning is important, but find it complicated. Anything that encourages people to take more responsibility for planning for the future is a good thing.”

The report also sets out the importance of advertising and marketing in order to raise awareness of the service. One calculation allocates £10m a year for branding and marketing, but the report takes into account research from the Public and Corporate Economic Consultants, which talks about a variety of public information campaigns costing between £5m and £30m.

However, David McCann, planning director of financial services specialist Teamspirit, claims the Government does not have a good track record when it comes to advertising financial services and that the industry should have a greater say in how the scheme is promoted.

He points to a COI campaign for the launch of stakeholder pensions in 2001 and says: “The ads had sheepdogs prancing around. It was a truly awful, forgettable campaign and cost £10m of taxpayers’ money. We’d rather the Government kept its interest to the issues of who will offer the advice and how the quality of that advice will be monitored, and let the industry decide [on] the best way to promote a service that it will almost certainly have to pay for and deliver.”

The Thoresen review was first announced in January this year. The pilot projects were unveiled in September and the review’s final proposals are expected in early 2008.

The latest findings come at a precarious time for the UK economy. The credit crunch has combined with economic factors to slow down growth and it emerged this week that Britons owe £216bn on credit cards and unsecured loans. New figures from the Bank of England show that consumer debt rose by £1.35bn last month, and total debts, including mortgages, went up by £11.2bn to £1.38tr. Borrowing on credit cards went up £310m in September, with lending through overdrafts and loans up by £1.04bn – the biggest monthly jump since May.

Such figures have led to increased calls for schemes like GFA to be introduced. Doug Taylor, campaign team leader for personal finance at Which?, says the consumer group is a strong supporter of GFA. “We’ve got a situation where people find financial services advice forbidding,” he adds. “We need somewhere where people can get financial advice without the sell, and that may mean they need to go and get more sophisticated financial advice.” Taylor believes that the GFA would also improve people’s trust in the financial services industry as a whole.

It is not yet clear whether the scheme will be known as GFA or if that is just a working title, but doubts are already surfacing about the name. National Consumer Council Senior policy advocate Nicola O’Reilly says: “One of the most important parts of this is how it’s marketed, and the title [GFA] isn’t snappy.”

O’Reilly believes the advertising should avoid scaremongering and instead highlight the benefits of GFA: “The advertising is essentially awareness-raising. It needs to show what people can get, but also the incentive behind that.”

Independent research organisation the Resolution Foundation adds that it is important the Government does not rely on advertising alone to raise awareness of the service. “It’s vital it looks at other areas, such as trusted intermediaries like the Housing Association and Child Trust Finds,” says acting chief executive Patrick South.
Thoresen points out that the GFA service is not designed for those in financial crisis, but rather to help prevent people falling into serious difficulties. He says it should help people manage their budgets, plan for retirement and understand tax and state benefit requirements.

Some observers have questioned whether advertising can really change the UK’s spending culture. Hoban says: “Advertising can’t change people’s minds, but it can encourage those who are already open to the suggestion. Telling people who are obsessed with spending to save isn’t going to work, but most people know they have to provide for their own futures these days. Advertising can remind people how important that is, so it can have an effect.”