Bruce Moss: Why FAMR sets employers free

Moss-Bruce-eValue-620x430.jpgThe Government has cleared the way for employers to promote financial wellbeing in the workplace says EValue founder and strategy director Bruce Moss

There are many good reasons for employers to offer their employees access to a financial wellbeing portal. The results of improving the financial wellbeing of employees have been shown, for example, to lead to a reduction in stress and absence from work, the creation of additional employer loyalty and an improvement in productivity. Now, for its own reasons, the Government is taking steps to encourage employers to get more involved with their employees’ financial wellbeing. The latest being to clarify that employers can give financial guidance without fear that they will be straying into the regulated world of investment advice.

The Financial Advice Market Review (FAMR) report, published earlier this year, concluded that enlisting employers is one of the best ways of helping consumers manage their finances more effectively. FAMR was launched in August 2015 to address concerns that the market for financial advice in the UK was not working well for all consumers. In particular, there was growing concern about the number of people who are unable obtain financial advice – otherwise known as the “advice gap”. This term is used as shorthand for the fact that there are many millions of individuals with relatively limited sums to invest who, for reasons of industry capacity and cost, don’t have viable access to face-to-face advice at present. The advice gap is especially worrying as the demand and need for advice is set to grow as a result of the new pension freedoms which arrived last year. The FAMR report made a number of important recommendations.

Employers – the vast majority of whom are not regulated – have always been nervous about promoting or saying much to their employees about investments, concerned that they might be inadvertently engaging in investment business. FAMR has sought to allay these fears. Among the key recommendations was a proposal to amend the definition of advice. The Treasury has now published its proposed new definition of advice. This would narrow the definition of advice to providing a personal recommendation. Previously investment advice included saying anything related to the merits of them buying, selling, subscribing for or underwriting an investmentm, or exercising rights to buy, sell, subscribe for or underwrite such an investment.

This is important because, by narrowing the definition of advice, the Treasury will have taken giving guidance about investments out of the scope of advice. Provided that employers do not make personal recommendations to individual employees, there is no danger of them being judged have engaged in investment business and hence needing to be authorised.

There were other positive measures in FAMR to encourage employers to get more involved in helping employees manage their financial affairs. Specifically the Financial Advice Working Group, set up by FAMR, has been charged with working with employers to produce a factsheet on what help employers and trustees can provide on financial matters without being subject to regulation. Additionally the Financial Advice Working Group is also leading a task force to design and test a set of rules of thumb and nudges that can be used by employers to encourage employees to do the “right things” financially.

There is also encouragement for employers to help employees get pension advice. FAMR included proposals to increase the existing £150 income tax and National Insurance exemption for employer-arranged advice on pensions. Subsequently the Government announced that the tax and NIC relief available for employer-arranged pensions advice will increase to £500 with effect from April 2017. And, in addition, the Government is consulting on introducing a pensions advice allowance that would enable individuals under age 55 to withdraw up to £500 tax free from their defined contribution pension plans in order to pay for financial advice. So it may be possible for someone in their early 50’s to be able to have tax breaks on £1,000 worth of advice.

So, the stage is set for financial wellbeing to transform the corporate market with the arrival of portals offering employees guidance on all their financial needs, access to tax efficient advice, some of which, for simple needs, can be delivered really cheaply by computer algorithms, and the ability to buy the full range of financial products for all stages of life. Great news for employees and employers – a rare example of a win-win.