| Confidence in long-term savings
The long-term savings market is worth £1,900 billion-plus and its efficient working is vital for the prosperity of both savers and the wider economy. It is widely accepted that there is now a damaging lack of consumer confidence in long-term savings.
Improving product information
Providing savers with clear, succinct information would reduce the risk of mis-selling. We challenge the industry and regulators to develop a brief, standardised Summary Box showing the basic characteristics of a product. There is an urgent need to develop a simple summary risk indicator for products, suitable for inclusion in the Summary Box.
Aligning savers' and industry interests
A closer linkage between the investment returns for customers and executive remuneration may be beneficial. The dominance of selling activity rewarded on a commission basis may also leave savers suspicious that they are being sold a product for the wrong reasons. A fee structure containing a stronger linkage to investment performance would align the interests of savers and the industry more closely.
Improving distribution
Full and easily understood disclosure of fees and commissions to savers is vital for an efficient market. Clients should be given an explicit comparison of the total cash cost of buying a product on a fee or commission basis over the likely life of the product. For IFAs to receive trail commission whether or not they are providing any real on-going advice to the client is unacceptable. All the major trade bodies in the long-term savings industry should have clear codes of practice and we call on the AIFA to establish such a code.
With-profits products
While investors are unable to see the performance of the underlying investment fund and are subject to exit penalties without clear explanation, they may remain reluctant to re-enter the with-profits market. Closed funds now total £160 billion and offer policyholders lower prospects of growth. A consolidation process among closed funds is now underway and it important that the FSA ensures that policyholders are treated satisfactorily through this process. Reform of the actuarial profession is overdue.
Sandler products
The basic advice process proposed for Sandler products will help meet fears that a simplified selling process would see large scale mis-selling with little prospect of consumer redress. We are disappointed, however, that part of the charge for Sandler products is not more clearly linked to investment performance. It would be unfair for product providers to levy the new, higher charge on existing stakeholder pension contracts. Regulated prices in the financial services industry should be set by an independent body after clear and transparent analysis.
The role of the FSA
The current low level of consumer confidence in long-term savings largely reflects the weak regulatory framework and industry practices prior to the arrival of the FSA. Apart from in the area of money laundering, where most agree the regulations require simplification, we received no specific complaints of excessively burdensome regulation. The length of time contested enforcement cases take is of concern. The FOS commands wide support and calls for a general appeals process against its decisions should be resisted. Greater public knowledge of the FSA's role in protecting their interests would help restore confidence. The FSA should launch a publicity campaign for its role in regulating financial services.
Tax & benefits
Recent moves to simplify aspects of the tax regime for pensions are welcome but there is substantial scope for improving the coherence of the present complex tax regime in promoting savings. The feasibility of granting more flexible access to pension savings during periods of unemployment or illness should be examined. The working of the new benefits system needs to be monitored closely.
Financial Capability
FSA's efforts to improve financial literacy are widely supported with an acceptance that the industry should meet much of the cost. It is deplorable that complex rules have hampered the provision of financial advice through the work place and via voluntary agencies such as Citizens Advice. The whole financial services sector should be encouraged to support Citizens Advice's work in this area.
Conclusions
The industry needs to take responsibility for tackling the problems confronting it. One of the main priorities is ensuring competitive returns to the saver. The industry itself needs to be more proactive in identifying activities that threaten to tarnish its image. A broad ranging forum should be established with the aim of giving early warning of problems. There is no scope for complacency when it comes to public trust in the solidity and solvency of savings institutions. An important test for all retail products should be: "is the average person likely to be able to understand this unassisted?"
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