The proposals for Sandler stakeholder products – that providers should be able to charge 1.5 per cent management fee for the first 10 years, 1 per cent thereafter – are a typical Government compromise which will solve nothing.
Part of the problem is that there is a fundamental conflict in what the Government is trying to do. It wants the man in the street to be able to buy risk-controlled long-term savings products and pension plans with confidence with minimal advice and low charges.
But it turns a blind eye or refuses to accept the fact that the product providers are primarily sales organisations, not geared to and not interested in giving advice. What they want to do is sell – which is not unreasonable.
Raising the cap on charges will do nothing to improve consumers' access to impartial advice. It will simply allow the providers to pay higher commission to bank and building society multi-tied salespeople – the very distribution outlet which has been guilty of some of the worst misselling. All that raising the charge cap will do is to make the products less attractive to consumers.
The only place that savers will find truly impartial advice is from an independent financial adviser who charges a fee. The alternative is for the individual to take an intelligent interest in their finances, realise how important this is and read up on pensions, savings, mortgages and the like. Most will not.
Generally speaking, those who come into the “taking an intelligent interest” are the wealthier middle classes with money to save who realise that paying a fee to an expert is the sensible choice.
The best thing that can be said for the Sandler proposals is that regulating the products is likely to be more effective than regulating the sales and advice machine. But if the Government is taking this route, why increase the charge cap at all?
Once you stop the long-term savings institutions from ripping off customers with heavy penalties for getting your money back, unfair terms and conditions and properly regulate the investment funds to which these products are tied, much of the requirement for advice disappears.
This could have been done years ago when the regulations concerning unfair terms in consumer contracts were introduced.
If the Office of Fair Trading had used its powers to attack the financial institutions for what are patently unfair terms on products, the market could have been cleaned up much sooner.
It has taken until now for the Consumers' Association to be given powers to bring “super-complaints”. Why? Hopefully, we shall now see many more challenges reg-arding terms and conditions on financial products, most of which are unfair if you take the trouble to read the small print.
But if the Government thinks Sandler products will restore confidence in the savings institutions and encourage its target market – those on average earnings and below – to save, it is likely to be disappointed.
Apathy about dealing with finances is widespread, probably because the lower-income half of the population lives a hand to mouth existence, with few opportunities to plan finances further ahead than how to pay the rent next week.
For these individuals, often pensioners, the unemployed, single parents and those on low earnings, no amount of advice, whether it is impartial or basically sales-oriented, will solve their financial problems. What they need is to be given a decent state pension or to be released from punitive rates of tax.
Until the Government does this, it will find that individuals will continue to rely on the state for benefits rather than their own resources.
If the Government really wanted to provide impartial advice on financial matters, it would be better looking at providing funds to the Citizens' Advice Bureaux to train financial advisers who would be available to give free advice to those on low incomes.