Money Guidance scheme 'will kill off many IFAs'

• Otto Thoresen proposed government funding. Picture: Phil Wilkinson

The government has said it will go ahead with the Money Guidance scheme, which would offer free impartial advice on matters such as budgeting, saving and debt management.

The scheme was proposed in 2008 by Otto Thoresen, chief executive of Edinburgh-based Aegon UK, after he was asked by the then Labour government to look into the provision of generic financial advice.

The estimated 40 million annual cost of the service – to be run by the Consumer Financial Education Body, established last month – was originally to be shared equally between government and industry, including IFAs, insurers and other providers.

However, the new government has revealed that financial services firms will cover the entire cost through a social responsibility levy.

The 2008 Thoresen Review suggested that a fully rolled-out service would cost small IFAs between 150 and 400 a year, large IFAs 3,000 to 7,000, a year and insurers about 10,000 a year. Those figures can now be at least doubled after the government passed on full responsibility for funding.

Financial advisers have warned that the extra costs would be the last straw for some IFA businesses. Iain Wishart, chartered financial planner and owner of Edinburgh IFA Wishart Wealth Management, said: "The government and the Financial Services Authority keep passing the bills onto the successful IFA sector, but this cannot go on for ever.

"The irony is that high-quality IFAs will simply aim their sights at the wealthy and the very people who could benefit most from independent advice are ultimately going to be priced out and forced to go to the banks."

Rising business costs are especially onerous for small IFA firms turning over as little as 30,000 a year, according to Wishart.

"Costs of this nature will harm them or force them to leave or merge with other firms. It was not IFAs who caused the credit crunch, it was a mix of poor regulation and the banks doing whatever they pleased, so it should be a mix of government and the banks that pay for Money Guidance."

Graeme Forbes, chartered financial planner at Intelligent Capital in Glasgow, said the extra costs would "inevitably" force more advisers out of the industry. "It is just an additional layer of costs on the financial services industry in general and a small sector in particular, that will tip many firms and practitioners over the edge of profitability."

Thoresen claimed financial services firms including financial advisers would benefit from the scheme's promotion of the value of financial planning. He said: "The important thing is that the service goes ahead and appropriate resource is allocated."