The current Covid-19 crisis provides the financial services sector with an opportunity to respond to the needs of consumers, provide them with the help and support they will need in the coming months and help them stay safe from scams, Baroness Morgan of Cotes told delegates at PIMFA’s inaugural Virtual Fest on Wednesday (3 June).
“Looking after customers is going to become really important,” she said. “I think customers will remember how well they were looked after during this period.”
Comparing the current crisis to that of the financial crisis a decade ago, the former Cabinet Minister said very early into the pandemic there was a sense that among the public the mood was ‘we helped the banks ten years ago, now it’s their turn to help us’. But the current crisis wasn’t “like the credit crunch” she said.
Banks, in particular, are in a much stronger position than they were in the last decade, leading to them and the wider financial services industry, to respond in the right way to the crisis. Baroness Morgan said the industry had worked well with regulators and the Treasury, in particular, to quickly raise concerns and engage in a dialogue resulting in important measures such as mortgage repayment holidays to help the financially vulnerable.
However, she also cautioned: “For some, what has happened will have come as a shock. What we don’t know is what will happen to household spending and household debt. FCA action on payment holidays was right but it was only a problem delayed.”
Jo Phillips, Director of Research and Innovation at Nest Insight warned delegates at the festival earlier in the day that 68 per cent of UK households had reported reduced income in April alone, while 50 per cent of UK adults reported that they were financially ‘struggling’ or ‘squeezed’. Around 30 per cent of households had already used their savings to make ends meet as a result of the current Covid-19 crisis, and fifth of households were struggling to pay bills, both impacting on savings ratios and suggesting levels of financial resilience, which were already low before Covid-19, were going to push many more households towards financial vulnerability. Almost half of households had less than GBP500 in savings while a quarter had less than GBP100. Debt advice charity Step Change also reported last year that it had been contacted by 635,091 new clients seeking debt advice, she said.
Phillips also spoke of the loyalty penalty – which costs consumers GBP4.1bn every year as a result of over 65’s being less willing to switch providers due to not being online or being unwilling to make choices in complex markets. The FCA meanwhile found 78 per cent of consumers were unaware of changes to their pension. Joel Lewis, Policy Manager at Age UK told Virtual Fest delegates there were 800,000 older victims of fraud a year, warning the effects on health, finances and relationships could be devastating.
Baroness Morgan said the Treasury was very focused on how the UK and the economy emerged from the current crisis. “I suspect there will be a fiscal event. I doubt there will be any tax announcements but the Chancellor will want to show that he has an economic plan for how we emerge from the crisis. ‘Build Back Better’ is very much at the forefront of the Chancellor’s mind,” she said.
But the former chair of the Treasury Select Committee added: “I don’t think anyone should underestimate the pressure on bandwidth in government at the moment. So having people who say ‘we can see this issue coming down the tracks’ is likely to continue to be welcomed.”
Measures to be announced by the Chancellor in the coming months would most likely be focused around the government’s manifesto commitments to ‘level up’ the country with a focus on providing investment outside of London and the South East. The peer suggested the financial services sector would be well placed to provide advice to the government on where best to target that investment.
Continuing on the theme of protection, earlier at the virtual event Terry Wilson, Global Partnership Officer at Global Cyber Alliance, warned organised crime was changing. “It is still very business-like, but it’s going after the ‘low-hanging fruit’ as well as the big hits. And the low hanging fruit is you, the person working from home,” he said.
He warned investment fraud had rocketed since lockdown started. Both people and businesses were targets of organised crime groups, with people being scammed out of their savings by criminals posing as legitimate entities. Firms could be victims of ransomware orchestrated by organised crime groups who were so skillful that security professionals were now being taught by police how to negotiate with them.
Baroness Morgan suggested there would soon be a Parliamentary debate about how best to protect consumers from unregulated companies advertising on online platforms. She said protecting consumers had to be balanced with making sure people were better educated about potential scams.
“The only way to keep the [FSCS] levy on an even keel is to prevent scams and by reducing the number of victims in the first place. Making sure people are educated about scams will be a big part of this and the more that people become responsible for their own pensions etc., the more that will happen,” she said.
Liz Field, Chief Executive of PIMFA, commented: “I’m grateful all our contributors to Virtual Fest, particularly Baroness Morgan for her insights into the likely focus of government over the coming months as we emerge from the Covid-19 pandemic. She again highlights the value of professional advice and the important role our profession plays in safeguarding individuals financial and mental wellbeing.
“Renewed vigour to help protect consumers from scams, and ensure they get the right information will be a vital piece of work for wealth managers and financial advisers in the months to come. This is why as part of our Financial and Wellbeing Campaign we launched our Scam Safe microsite to help advisers and consumers alike. It is only through continual communication that we will be able to help people to protect themselves from financial crime.
“It’s clear from the evidence we have seen today that anyone can be a victim of a scam. There are clearly a large number of vulnerable households and the Covid-19 has exacerbated what was an already serious problem. Wealth managers and financial advisers will play their part in helping to reduce the financial attacks on consumers but they cannot do it alone. This needs a wider approach from industry, policymakers, charities and the regulator.”