The financial industry is facing a crisis of consumer confidence and trust but there are real opportunities for firms, according to Financial Services Authority director of financial capability Chris Pond.
Speaking at the Tax Incentivised Savings Association's Shaping the Future conference Pond said there was a difference between confidence and trust. Consumers were no longer confident that the investment they were making would yield what they needed. Ordinarily, they would pass their trust onto institutions to manage their money for them, Pond said, but that trust had also broken down.
Pond said one way to restore this confidence and trust was to improve consumers' level of understanding of financial services, which would help to rebuild their confidence to engage with the industry.
From the FSA's point of view, financial capability was just one part of a "wider canvass", Pond said. Other FSA initiatives included the Retail Distribution Review and Treating Customers Fairly, both of which were designed to help restore confidence and trust in the industry.
Pond urged the industry to play its part in helping to educate consumers and rebuild their trust.
"Things look bleak at the moment but there is a real market opportunity," he said.
He said it was "essential that we work to rebuild confidence".
Pond cited a speech made by Jon Pain, FSA's managing director of retail markets, in which he said: "We can not allow the public to believe that the financial services markets cannot provide the solution for their longer term investment and retirement needs."
Financial capability is about the ability to manage money, keep track of finances, plan ahead, make informed decisions and stay up to date about financial matters, he said.
The FSA had changed elements of its financial capability strategy to ensure it remained relevant to current conditions, Pond said. To this end it was providing support for people facing redundancy, for those going through divorce and separation and those at or near retirement.
Pond said a recent survey revealed that one third of families were losing sleep over money issues.
He said the sort of free, impartial Money Guidance service proposed in the recent Thoresen report was more important now than ever. Pond called on the industry to play its part in providing such advice, even if it did not lead directly to a sale.
The payback in the longer term for firms would be that: "Having capable and confident consumers is necessary to the industry. It reduces the need over time for regulatory intervention." Pond stressed that he was not talking about any short term reduction in regulation ─ far from it. In fact in the next few years firms should expect more intrusive regulation, more regulation, he said. In the longer term though, more capable and responsible consumers could mean lighter regulation.
There were plenty of incentives for people to save in the pipeline, including the introduction of Personal Accounts in 2012, the retail distribution review, the Savings Gateway and child trust fund top-ups, Pond said.
He stressed however that simply "having the instruments without increasing the perception that people need to save, will not work".
TCF was also designed to rebuild confidence. The message needed to get out to consumers, Pond said, that the FSA was incorporating TCF into its every day supervision and expected firms to incorporate it in every part of their business. He said consumers needed to understand firms' obligations to treat them fairly and to "wave the flag" if they were not being fairly treated.
"Supervision will be much more intrusive. We will still focus on principles but our main concern will be on outcomes," Pond warned. He said the FSA expected to see proof that firms had changed their culture, and that would be evidenced by seeing more senior management engagement, he said.
Firms had responsibilities but so too did consumers, Pond said.
He acknowledged that the whole area of consumer responsibility was "contentious". The FSA published a discussion paper, DP08/5 on consumer responsibility at the end of last year, which had consumer organisations up in arms.
Pond stressed however that it was not the FSA's intention to make consumers "carry more of the buck". It was to make them more able to meet their existing responsibilities, not to increase the level of consumer responsibility, he said.
The FSA was looking for a "partnership" with the industry in order to make consumers "confident enough to go back in the water", Pond said.
