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FCA & HMT - Financial Advice Market Review

Response to the consultation

Credit unions approach the subject of financial advice from the perspective of the needs of lower income consumers and a sector which, typically – apart from in the few cases where credit unions provide mortgages – does not currently engage in advised sales or the provision of financial advice more generally.   However, credit unions are active in the fields of financial inclusion, financial education, budgeting support and the provision of generic money advice.  As such, credit unions do have a particular insight into the needs of particular sections of society and some of the gaps in the provision of advice that currently exist.

From consultation with our members, we would make the following points in response to the review:

  • Lower income consumers have a need for financial support, generic money guidance and help with basic financial skills such as budgeting and dealing with debts.  This is a key focus of the Money Advice Service and ABCUL will be responding to the parallel consultation on the provision of Public Finanical Guidance to this end.  However, we would make the general point that the provision of this support is very patchy at present with agencies such as credit unions providing this generic support in an ad hoc and informal way and without a great deal of co-ordination or support from above.

  • There is a growing element of regulatory compliance risk which is bearing down on the willingness of credit unions to provide these informal guidance and bugeting support services since the line between guidance and advice is not clear.  Credit unions wish to be compliant and do not want to engage in advice activities for which they are not qualified or regulated and, while many cases are straightforward, in a significant proportion of cases credit unions are faced with difficult judgements about how far budgeting support can go before it becomes, for instance, debt advice or financial advice in respect of, for example, the optimal balance between building savings and paying down debts.

  • A greater degree of regulatory certainty around the line between advice and guidance would be greatly beneficial to credit unions who are seeking to support their members on an informal and free-of-charge basis as part of their social mission and in fulfilling their statutory objectives of “promoting thrift and the wise use of money”.

  • More generally, there is some anecdotal evidence of credit union members – who are typically, but by no means always, in receipt of a lower income – requiring regulated financial advice which currently credit unions are unable to provide.  This is an area credit unions are likely to look to increasingly enter into both in order to diversify their services and increase revenue and to respond to genuine member needs as the availability of advice lessens due to heightened perceived regulatory risk and the perceived higher costs of advice post-RDR.

  • A key challenge in developing a credit union advice proposition is the economics of developing a service which is viable for the credit union and the increased regulatory requirements around advice are a key consideration here in addition to concerns about regulatory liabilities.  This may be an area in which collaboration between credit unions may assist and the sector is actively pursuing a number of collaborative efforts to address such scale challenges at present. However, greater regulatory clarity would also assist here as would consideration of lighter regulator requirements in areas of advice which might be considered lower risk.

  • Feedback from member credit unions suggests that while it is certainly the case that lower income people have, by definition, less assets to manage and therefore less need for regulated advice, we are also keenly aware that the reduction in the availability of advice generally is affecting those with smaller portfolios primarily since they are less attractive to advisers and less able or willing to pay fees for finanicial advice. 

The PDF version of this response is available to download on the right-hand side