Select Committee on Treasury Written Evidence

Memorandum submitted by the Retail Financial Services Group

Update to Treasury Select Committee—July 2006


  1.  The Retail Financial Services Group is an independent, voluntary and collective effort, on the part of major UK financial services companies, consumer groups and trade associations, to pursue one of the Treasury Select Committee's (2003-04) recommendations in its report on long-term savings, published in July 2004.  The Committee commented that:

    "We are surprised that the industry currently fails to engage in serious dialogue on a regular basis with consumer bodies and other interested parties on issues such as pension reform, access for the less affluent or, indeed, general consumer confidence. This may well partly explain why the industry in recent years has seemed to limp from crisis to crisis. There is a need for the industry, the regulator and consumers to establish a collective, forward-looking joint agenda. This should particularly focus on how the industry can better serve its customers. We recommend the establishment of a broad ranging forum, including representatives from all parts of the industry, consumer groups, the FSA and Government. This should meet regularly with the aim of agreeing priorities, monitoring progress, giving early warning of problems that might be arising and putting pressure on laggards in the industry to catch up with best practice."

    Restoring confidence in long-term savings, Treasury Select Committee (paragraph 115)

  2.  Initial exploratory steps to establish such a forum or group, broadly following the remit outlined in the Treasury Committee recommendation, began in late 2004 and gathered momentum in 2005.  At this stage, discussions with potential participants were brokered directly by the Committee chair, John McFall.


  3.  From the outset, it was envisaged that the Group should be an independent effort to bring together senior executives from the long-term savings industry and their counterparts from consumer groups—the key stakeholders involved would be the industry and consumer organisations, with the support of Government, the regulatory authorities and the Financial Ombudsman Service.

  4.  Potential participants from industry agreed that the membership should primarily consist of chief or senior executives from some of the relevant companies and organisations, as opposed to trade association representatives or officials. This was intended to allow a more open or wide-ranging debate, and give consumer groups greater direct access to the views of market practitioners. However, participants also recognised that the trade associations should have a central and direct role to play in establishing and providing support to the group, as well as contributing to its developing work-streams and discussions. In practice, these connections are reinforced as all the senior practitioners are members of the relevant associations, and, in many cases, are also current or former trade association board members or chairs.

  5.  Participants agreed that the membership would need to represent the broad spectrum of the financial services industry involved in the long-term savings market—the life insurance sector, retail banking and other product providers/distributors, investment fund management and independent financial advice. This field of interests also suggested the core involvement of the following trade associations at a working level: the Association of British Insurers (ABI), the British Bankers' Association (BBA), and the Investment Management Association (IMA).

  6.  The Group would need to bring together the major consumer groups and advocacy organisations with a strong interest in saving and investment. These include the Financial Services Consumer Panel, the National Consumer Council, the National Association of Citizen Advice Bureaux and Which?

  7.  Finally, in order to fully reflect the key stakeholders involved in the industry, it was agreed that it would be essential for the Group to receive both the broad support of, and some level of participation from, the Government and the appropriate regulatory authorities. Therefore the Financial Services Authority, the Financial Ombudsman Service, the Financial Services Practitioner Panel and HM Treasury are also represented at the Group's meetings. HM Treasury has also provided the secretariat support for the Group.

  8.  It should be stressed that the Group is not a policy-making body for any of its members or any form of public agency. Rather, the Group is an informal forum that encourages a frank, open and sustained discussion between individual senior figures, who are able to speak with both independence and authority. As the Group develops, it hopes to seek out and promote areas of consensus or joint positions, and it may also aim to develop a more significant media profile. Although the Government is keen to support and facilitate the work of the Group, it should be stressed that the Group's own agreed positions will not always reflect the views of Government or the regulator—in fact several of the Group's initial outputs have involved direct requests to Government. Neither is the Group's own output binding on the organisations from which its members are drawn.

  9.  The Group participants asked Richard Lambert to become its first chairman in Spring 2005.  All participants recognised that the chair of the Group would need to be a senior impartial and independent figure, combining a broad experience of financial and wider commercial world with a wide-ranging interest in, and understanding of, economics and consumer affairs. At the time of appointment, Richard Lambert was an external member of the Bank of England's Monetary Policy Committee. He was previously Editor of the Financial Times between 1991 and 2001.  Mr Lambert also conducted independent reviews on behalf of the Government (the Lambert review of Business-University Collaboration in 2003, and a review of BBC News 24 for the Department of Culture Media and Sport in 2002). The Group chair is a voluntary unpaid role.

  10.  Richard Lambert has envisaged the role of chair as providing, first and foremost, an impartial facilitating role between the members of the Group at its main meetings. He has sought to propose an agenda based upon consultations with the membership and information provided by the secretariat. The Chair tries to establish consensus positions on the issues discussed as well as identifying and communicating the major points of disagreement or problem areas. Richard has also tried to propose areas of further Group work, joint papers or signed letters, and has begun the process of establishing an independent "voice" for the Group that tries to reflect its discussions and concerns more widely.

  11.  The full membership, at its first official meeting in June 2005 was as follows:

Richard Lambert—Chair

Paul Myners—Deputy Chair

David Budd—Chief Operating Officer, HSBC

Sir James Crosby—then Chief Executive, HBOS

Simon Davies—Chief Executive, Threadneedle Asset Management

Ann Foster—then Chair, Financial Services Consumer Panel

Patrick Gale—Chief Executive Officer, Sesame

David Harker—Chief Executive, Citizens Advice Bureau

Richard Harvey—Chief Executive, Aviva

Roy Leighton—Financial Services Practitioner Panel

Stephen Locke—Board Member, National Consumer Council

Keith Satchell—Chief Executive, Friends Provident

Mark Tucker—Chief Executive, Prudential

Peter Vicary-Smith—Chief Executive, Which?

Walter Merricks—Chief Ombudsman, Financial Ombudsman Service

Clive Briault—Managing Director Retail Markets, Financial Services Authority

Clive Maxwell—Director of Financial services, HM Treasury

  12.  Since that time there have been a handful of changes. Ann Foster has stepped down as chair of the Consumer Panel, the panel's present chair, John Howard, has taken her place. Teresa Perchard, Director of Policy at Citizens Advice has attended a majority of the meetings in place of David Harker, and Sir James Crosby has stepped down as Chief executive of HBOS. Mike Fairey, Deputy Group Chief Executive of Lloyds TSB has taken up this place from September 2006.  Paul Myners resigned from the Group in February due to other commitments.

  13.  Members of the Group agreed a suitable level of dedicated resource to support its discussions in its first year. Participants agreed to secure funding for the Group via its members and trade associations, with all making a significant contribution. Funds of £100,000 were pledged in total from the following members, the Financial Services Authority (£25,000), the Association of British Insurers (£25,000), the British Bankers' Association (£25,000), the Investment Management Association (£15,000) and Which? (£10,000).

  14.  These funds were primarily used to cover the secondment of an official from HM Treasury to act as independent secretary to the Group and provide briefing support to the Chair. Which? also complemented their financial contribution with the generous offer of dedicated office and meeting room space, along with IT and functional support for the secretariat.

  15.  The Group was established as an "Unincorporated Association", with a brief constitution outlined and agreed at its June 2005 meeting (attached at annex A). This form was chosen to minimise the legal and administrative aspects of the Group in this early stage of its existence and reflect its informal nature, allowing a quick establishment with minimal bureaucracy. An unincorporated association is not a legal entity, and cannot enter into contracts, but it allows the Group to establish its own Bank Account, with the chair or appointed members as signatories.

  16.  The Group agreed that its minutes and most associated papers should be distributed to members and made publicly available. Minutes and associated papers are posted on a dedicated website for the Group (


  17.  The group has held six full meetings since its formation in 2005: June and October 2005, February, April, June and September 2006. The agenda for each meeting has sought to develop a range of specific interests or interconnected themes for the Group, with the aim of developing the Group's discussion. At its first full meeting in June 2005, the Group agreed a mission statement drafted to reflect both the concerns expressed by the Treasury Select Committee in its original recommendation, and the objectives proposed by the membership.


  The Group aims to encourage a thriving savings culture and a competitive retail financial services environment in the UK by building consumer confidence in personal savings and investment. It will be a place for frank, open and constructive dialogue between all players. The Group will:

    —  provide an early warning mechanism to highlight emerging problems;

    —  have an input into policy stances and individual initiatives at an early stage; and

    —  and promote best practice.

  The goal is to promote an industry that serves its customers better.

  18.  A continual challenge for the Group is to identify and focus on areas where an open discussion between practitioners and consumer groups may be of particular value, acknowledging the fact that there are already clear sites of responsibility or work programmes on financial services, led by the regulatory authorities, trade associations and influenced by direct consumer group consultation.

  19.  Members of the Group stressed that discussions would need to complement existing initiatives in order to add value, whilst avoiding duplication. At the same time the Group should seek to identify specific under-exposed topics that may emerge as threats to consumer confidence in the future. The Group also noted that while establishing consensus positions between industry and consumer groups would be desirable wherever practical, there would also be value in the general process of providing an informed debate.

  20.  The Group has pursued these objectives through a mixture of discussions focused on specific topics, along with update discussions from members on key initiatives and work-streams. A broad summary of these discussions is included below.

General themes—promoting consumer confidence

  21.  The Group has held several discussions focused on developing the general theme of consumer confidence. The chair wrote to members in January 2006 to propose that this theme, at the heart of the Group's mission statement, is articulated through the Group's future discussion on individual issues.

  22.  Group members have discussed the range of initiatives focused on consumer confidence underway at present, including work from industry trade associations, consumer groups and the FSA. Members discussed whether the Group could establish a role in setting out the common ground or overlap between those initiatives. For example, the Group could receive updates from the industry on consumer-focused initiatives—setting out what was delivered and how this has helped to increase justified consumer confidence. There would be a subsequent role for consumer representatives in the Group to comment on the progress made and highlight where further work may be required or what more could be done.

Work-stream discussions and outputs

  23.   Equity Release work-stream: The Group commissioned an initial piece of work on Equity Release schemes at the June 2005 meeting. This followed on from the publication of the FSA's thematic research and mystery shopping on the sale of "Lifetime Mortgage" products in May last year. The secretariat coordinated the production of an "Equity Release and consumer confidence" discussion paper for the October 2005 meeting of the Group. The Chair commissioned written contributions from members and the secretariat established an informal working group on Equity Release, holding two meetings (September 2005 and January 2006) to inform discussion.

  24.  The group discussed the Equity Release paper at its October 2005 meeting. The paper includes an overview of recent market developments, the introduction of FSA regulation for Lifetime Mortgage products and the enhanced advice and sales rules of the Mortgage Conduct of Business (MCOB) sourcebook. The paper focuses on the variety and complexity of the issues facing potential customers when considering Equity Release and the difficulties for the consumer in accessing and evaluating advice.

  25.  The Group's discussion primarily focused on the nature of any "Advice Gap" in the market. For example, members stressed that the need for a broad range of adviser expertise (mortgage, retirement planning, debt, tax and benefit status) meant that it was likely that only a very limited number of advisers would provide a full service on Lifetime Mortgage products. Other members stressed the need for high quality generic advice in order to build consumer understanding, though it was also acknowledged that significant sources of quality literature are now available but that this could only achieve a minimal amount without further measures, such as the promotion of "best practice" working methods in the advice market.

  26.  The group agreed to explore the provision of best practice advice for Equity Release products. The Chair and secretary received further briefings on the work being conducted by industry groups to raise advice standards in response to the FSA's mystery shopping results (including Safe Home Income Plans, the Council of Mortgage Lenders and Age Concern Enterprises). Most of these Groups are also engaged directly with the FSA's own Equity Release forum.

  27.  The Group produced an updated commentary or "report card" for its February meeting on Equity Release. This summarised the steps being taken by various industry groups, as well as outlining the response from consumer groups to the latest market developments and data—this included the Financial Services Consumer Panel/FSA correspondence on Equity Release in December 2005 and the Which? market update published in January 2006.  The FSA has recently published further research and mystery shopping results on the advice and sale of Equity Release. The Group may therefore return to this topic at a later meeting.

  28.   Pensions Tax Simplification: At the outset of the Group's meetings, members noted that the approach of the "A Day" (6 April 2006) pensions taxation reforms legislated in Finance Act 2004 represented a fundamental simplification of the pensions tax regime that could result in significant product innovation and the need for existing savers to review their arrangements or seek advice.

  29.  Industry and regulatory members felt that in general preparations for the implementation of A Day were well advanced, although there were some concerns on the relatively late finalisation of regulations and other changes. Industry and consumer group comment, as well as press attention in 2005 had focused on the apparent generosity and flexibility of the new rules in relation to self-directed pension investment in residential property. The steps taken in the 2005 Pre-Budget Report mitigated risks in this area.

  30.  However, the Group produced an initial discussion paper on tax simplification and consumer opportunities/risks for consideration at its April 2006 meeting, just after A-Day. Members noted that it was too soon to assess any general effects on the market, and stressed that the reforms would have the greatest immediate or "transitional" impact on the affluent or financially sophisticated who would need to review existing arrangements.

  31.  Anecdotal evidence suggested a rise in sales and advice activity in the run-up to A-Day. Members argued that any "churning" activity would not be readily identifiable simply from a rise in sales, as we would expect a significant amount of activity to take place as existing customers rationalised their portfolios.

  32.   Claims Management Companies and the Compensation Bill: The Group discussed claims management services and compensation at its February 2006 meeting, as the Government's compensation bill received scrutiny in the House of Lords. All the Group's members welcomed the Government's move to introduce a regulatory regime for claims management companies and discussed the particular relevance in relation to consumers' knowledge and use of the existing redress mechanism via the Financial Ombudsman Service.

  33.  The Group agreed to send an ABI briefing paper, along with a letter from the Chair outlining this broad consensus to the Department of Constitutional Affair's Compensation bill team.

  34.   Personal Pensions and Contracting-Out: The Group decided to defer discussion of most pension issues until after the publication of the Government's White paper on pension reform, responding to Pension Commission proposals of November 2005.

  35.  However, discussions with members identified a particular area of the pensions debate where there was a good argument for a more pressing debate. The Group discussed the provision of financial advice on contracting out of the state second pension into personal pension schemes, and the different approaches taken by firms in response to the level of rebates currently available. This was an area where there is a recognised difficulty in assessing likely future benefits and providing clear advice. The Group wrote to the Department of Work and Pensions to ensure that the White Paper provided clarity on the future of contracting out for defined contribution personal pensions and the policy intention supporting the present rebates.

  36.  The White Paper subsequently confirmed the Pensions Commission recommendation in this area. Contracted out rebates to Defined Contribution personal pensions will be abolished at the same time as the other major reforms are introduced, such as the introduction of auto-enrolled Personal Accounts (2012 or by the end of the next Parliament in any event).

Update discussions

  37.   ABI work on commission and financial advice: In October 2005 the Group received an update paper from the ABI on its "paying for financial advice" work programme. Members noted the objectives, including the elimination of bias and/or the perception of bias arising from remuneration structures, an increase in the transparency of charging structures and the need to ensure a sustainable capital base for the advice industry. The ABI hoped to identify and address continuing concerns. Members disagreed on whether the commission-based advice model resulted in significant sales bias or potential consumer detriment and the sustainability/appeal of alternative remuneration models, including upfront fees.

  38.  Since this date the FSA has also published the findings from mystery shopping and desk-based research on the provision of new Initial Disclosure Documents or "menus" by advisers, with "disappointing" results in terms of compliance with the disclosure regime and accurate document formatting. [11]The FSA provided further feedback on this area in its Treating Customers Fairly update published in July 2006.

  39.   FSA paper on risk ratings and product disclosure: The FSA presented a paper to the Group in October 2005, reporting on the meetings of its taskforce exploring the feasibility of risk ratings, as part of its review and consultation on potential reform of product disclosure rules. The Group discussed the FSA's decision not to pursue a risk rating or "traffic light" system as part of the disclosure review, in light of the potential problems in defining and categorising different forms and levels of risk as well as the potential for "moral hazard" or perverse outcomes.

  40.  Whilst members recognised these issues, there was also recognition that more independent work on risk measurement and communication would be desirable in its own right, could help to inform or standardise the approach to risk ratings taken by different firms, and may also inform the future development of the formal disclosure regime. The Chair encouraged members, via trade associations, to pursue initiatives to this end and the Group is taking a keen interest in potential work by both the ABI and the IMA in this area.

  41.  The FSA has also pushed back its intended consultation on investment product disclosure, citing adverse results of its analysis of the costs and benefits of introducing a new "Quick Guide" regime, as well as uncertainty on the implications on the implications of the delayed Markets in Financial Instruments Directive (MiFID) for product disclosure.

  42.   Industry and consumer group initiatives: The Group has had several discussions on the efforts of both industry and consumer groups to take new initiatives to promote best practice and consumer confidence. In October 2005, the Group received an update briefing from Which? on its consultation with the industry on a proposed code of practice and potential corporate governance reforms, entitled, "Time for a change: Restoring and maintaining consumer confidence in the financial services industry".

  43.  At the Group's April 2006 meeting the Group discussed the ABI's new initiative for the improving consumer confidence in the life industry "Customer Impact". The Group received a detailed presentation of the Customer Impact initial survey results and discussed the development of the Scheme, including suggestions from many consumer group members for the extension of the scheme and the publication of individual company survey results. The Group has also received an update from the FSA on the progress of its Treating Customers Fairly programme and the National strategy on Financial Capability. At its most recent meeting (29 September 2006), the group discussed the Treating Customers Fairly (TCF) programme in greater detail, in particular the risks to delivery of TCF going forward and a general discussion on the nature of principles-based regulation in the retail market. The Group agreed to investigate further discussion on measuring the outcomes/success.


  44.  In March 2006 Richard Lambert was appointed Director-General Designate of the Confederation of British Industry and stepped down from the Monetary Policy Committee. Richard became Director-General on 3 July and due to his new commitments he is no longer be able to chair the Group.

  45.  In the Spring, the Group began the process of inviting a new independent chair to join, working through an "appointments committee" drawn from the Group's membership. Subsequently the Group announced in June that Ron Sandler has agreed to become its second chair. Ron is Chairman of a number of companies, including Computacenter plc and Paternoster. He was previously Chief Operating Officer of NatWest and before that, Chief Executive of Lloyd's of London. In July 2002 Ron published Medium and Long-Term Retail Savings in the UK, an independent review commissioned by HM Treasury. He is Chairman of the personal finance educational charity pfeg and a member of the FSA's Financial Capability Steering Group. Ron chaired his first meeting in September.

  46.  The change in Chair marks a useful opportunity to take initial stock of the Group's progress. Members agreed that the Group had met its initial objectives and there was unanimous and unqualified support from members for the Group to continue meeting. A forward timetable of meetings in late 2006 and 2007 has been agreed.

  47.  The Group has been successful in creating a frank, open and continual dialogue focused on general consumer confidence, detached from most "day-to-day" lobbying or reactive commentary, between market practitioners and consumer groups. As far as the Group is aware, no other forum brings together such a diverse range of stakeholders at such a senior level to discuss high-level issues. Participants have also noted the increasing quality and openness of discussion over the last year.

  48.  There has also been a good balance of broad "consensus issues" and candid discussions where there are clear differences of opinion between industry and consumer advocacy members. The Group's ability to promote consensus outputs on some specific issues, such as the letter to the Department of Constitutional Affairs endorsing the Compensation Bill, provides a useful template for possible future engagement and agreements between the members.

  49.  However, the Group also recognises that, by its very nature, it is difficult to fully align the interests and opinions of its membership, making the pursuit of "consensus" projects or initiatives challenging. The Group has also had a limited media profile in its first year.

  50.  In order to add value, the Group will have to identify further areas for both consensus-building discussion and subjects where conflicting opinions should be usefully debated. A definitive outline cannot be decided until the new chair is established. Furthermore, the Group must remain to some extent "reactive", rather than prescriptive, if it is to pick up issues of immediate concern to members.

  51.  However the Group has highlighted specific areas where further work from members, trade associations and the regulator could be discussed. These include:

  Product disclosure and risk ratings: As outlined above, the Group will return to the research conducted by trade associations exploring the role of risk ratings in prompting greater customer engagement. The Group will also look to follow the FSAs next steps in consulting on its product disclosure regime more generally.

  Pensions White Paper: With the Paper published, the Group held a full discussion of the proposals, and reflected this in an extended minute submitted to the Department of Work and Pensions discussions over the summer. However, as the debate develops, and further announcements are made by the Government over the coming year, the Group is likely to return to the reform debate, with a particular focus on the question of building consumer confidence in any new system and thinking about the transitional stages.

  "Treating Customers Fairly" and principles-based regulation: As detailed above, the Group's most recent meeting discussed Treating Customers Fairly and the practical issues surrounding principles-based regulation. The Group intends to return to this area to discuss key questions relating to the measurement of success and helping to build a common understanding of what it means for firms to treat their customers fairly.

Annex A



1.   The Name

  The name of the organisation is The Retail Financial Services Group.

2.   The Objects

  The Group aims to encourage a thriving savings culture and a competitive retail financial services environment in the UK by building consumer confidence in personal savings and investment. It will be a place for frank, open and constructive dialogue between all players. The Group will:

    —  provide an early warning mechanism to highlight emerging problems;

    —  have an input into policy stances and individual initiatives at an early stage; and

    —  promote best practice.

  The goal is to promote an industry that serves its customers better.

3.   Group Membership

(a)  Officers

  There shall be a Chair, Deputy Chair and Secretary.

(b)  Members

  The Group is comprised of senior (usually chief) executives encompassing a broad range of the retail financial services industry including retail banks, insurers, the investment management industry and financial advisors; senior executives from both independent and statutory consumer/advisory groups and representatives of the Financial Services Authority, the Financial Ombudsman Service and HM Treasury.

  Representatives were put forward by the industry trade associations and the consumer groups, specifically the Association of British Insurers, the British Bankers' Association, the Investment Management Association, the National Consumer Council, the Financial Services Consumer Panel, the Financial Services Practitioner Panel and Which?. A selection of these bodies, along with the Financial Services Authority, also provides funding for the Group.

4.   Meetings

  The Group will meet quarterly. Minutes are to be taken at each meeting and retained by the Secretary.

5.   Dissolution

  In the event of the organisation dissolving—after paying or making provisions for all debts and liabilities of the Group, any remaining assets shall be repaid to the contributing members of the Group.

October 2006

FSA "Dear CEO letter": Results of our review of retail investment disclosure documentation, 24 March 2006. Full research available at Back

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