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Alan Lakey: We don’t need McProducts

The collective mindset of theorising bureaucrats is a thing of wonder and never ceases to provide both irritation and amusement, not always in equal measure.

Such thoughts neatly lead to the steering group on simplified products which will, by now, have reported back to Mark Hoban.

No doubt, he will shortly recommend the implementation of a raft of simple “McProducts”. Of course, this has been attempted previously with stakeholder pensions and CAT mortgages and we all know how enticing these were to Joe Public.

I am all for simplicity, particularly if it involves the removal of paragraphs of guff from brochures, reduces illustrations to one or two pages instead of between four and 10 and rids the world of pointless minutiae that nobody, not even the average adviser, is brave enough to trawl through. Looking back, we can identify a parallel between the insidious creep of regulation and the increasing length of brochures, etc, so it seems that the current focus has almost certainly missed the prime culprits.

There are three questions that require answers. What is a simple product? Will such a product be better or as good as existing versions? Who is expected to sell or otherwise distribute these plans?

The original thinking behind stakeholder envisaged a simple, flexible and cheap product which would be sold by volume outlets such as the banks. This notion was squashed by the FSA’s insistence that advice on simple products must meet existing compliance levels and that such advice would continue to be subject to FOS interpretation.

Stakeholder pensions were promoted as simple products which would be lapped up by consumers applying direct to providers. However, the expected surge of interest never materialised.

So, if the consumer refuses to buy, then it is down to the industry to persuade or sell to them.

Of course, one of the previous big ideas was the removal of the marketing allowance in a bid to reduce the cost. The RDR will achieve that at a stroke apart from that bit that the RDR missed – protection products.

I am told that the thinking behind the design of a simple term insurance is to remove waiver of premium, guaranteed insurability options and terminal illness cover. So, back to my previous question, who will sell such a plan? I cannot imagine recommending an inferior plan simply because it has been stripped down and, presumably, made a tad cheaper.

The collective mindset imagines a nirvana where trusting consumers willingly engage and purchase products without intermediation. Will this work? Will the MAS be able to deliver confidence and point consumers in the right direction? Will it possess the required skills to persuade consumers to protect themselves and their families?

The weakness of these assumptions is the proven inability to persuade unwilling consumers, which brings us back in a circle.

Mark Hoban wants,“simple, easy-to-compare products to be introduced to encourage more consumers to enter the financial services market”.

A far more likely scenario is that this proves to be yet another costly white elephant which swiftly creates mortification and handwringing. An embarrassment only partially mitigated by the knowledge that the financial consequences have yet again been borne by the industry while the guilty unaccountable culprits trundle off to further cosy sinecures.

Alan Lakey is partner at Highclere Financial Services

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Christopher Lean 3rd August 2012 at 8:38 am

    As I often say, adding another layer of simplfication just makes the job more complicated.

    The additional paperwork required to back up the simplified product recommendation, like as not, will be more than for the standard product.

  2. Alan – it appears you have either not read the report, not understood the contents or you have deliberately oversimplified your argument to make it credible, when in fact it is not.

    There are clearly significant segments of this market about which you have no knowledge.

  3. Stakeholder as a simplified product caused the removal of two very valuable personal pension options;

    Waiver of premium to protect pension contributions in the event of long term disability and/or ill-health, and

    Offset life cover which enabled a minimum level of fund return on early death

    Yes could could buy seperate life cover but both were relatively cheap protection options

    Concerntration by Government on cost alone caused the demise of two valuable options and the introduction of an inferior product in the name of simplification

  4. @Anonymous

    The concept of simplification is sound as long as it is aligned with distribution by advisers. The historic problem with Sandler products was the lack of distribution a margin.

    Consumers buy car and buildings insurance online and engage because they have no choice. Some will willingly insure their pets as they cannot bear the thought of excessive vets fees but when it comes to family protection the urge is dampened.

    For this reason, and this reason alone, protection products (which my article focused on) have to be sold. Anyway, God forbid that critical illness and income protection ever become truly commoditised.

  5. Michael Wainwright 3rd August 2012 at 3:29 pm

    Is it significant that Alan Lakey is prepared to put his name to articles, but someone who wishes to take a shot at him is not prepared to do so and calls him/herself ‘Anonymous’ at 9.15? Come to that is ‘Anonymous’ one person or a whole lot of people? ‘Anonymous’ 9.15 added nothing to the debate apart from having a shot at Alan. Anonymous 9.48 seems to be a different person who added sensible comments.

  6. Educating clients might be a better way to spend money.

    There are many simple and not so simple products out there, sometimes the simple option is best for a client sometimes a more complex solution suits better.

    educate clients on what things are, what they do, and the benefit of having them. Yes provide al the literature, because the small print is important. Educate clients on the fact that financial advice is beneficial, educate them that they have a choice other than just their bank’s limited offerings.

    Also try to restore some faith in the industry – let them know the changes that have been made following horrendous episodes like Maxwell. I could (if it didn’t breach data protection rules) list numerous people I have spoken to that did not want to put money in their employers’ PPP because they thought that if their employer went under they could lose their money. Likewise I have spoken to numerous people who don’t know what the FSCS is.

    Education, education, education.

    I must be having an optomistic 5 minutes here but hey, one can dream!

  7. @ Eliza
    Who will pay for the education education education?
    Apart from my own clients,
    Not me thats for sure.

  8. Nobody will because all the FSA are interested in is paperwork and confusion

  9. There are simplified life policies out there already – Aviva Simplified Life and Bright Grey Lifestyle Protection. The Aviva product was designed to be distributed via banks, but ironically the pricing is often higher than their full product due to higher cancellation rates. The only way this notion of simplified products will work is if all other products are removed. Do people buy cars without asking about the extras? The nominal cost of “extras” such as waiver or guaranteed insurability is not going to put people off going for a more complete product. If statistically people are more likely to become ill than die before the age of 70, then how is a simplified life product with no waiver at all going to benefit them? What will happen to all these people who will become ill but don’t have any life cover at all because they can’t work to pay for it? Will this be another scandal waiting to happen?
    Regarding the education question, there is an old adage (slightly modified) that goes: Give a man a brochure and he will read for a day, teach him how to use the internet and he will learn for a lifetime.

  10. Build a man a fire and you keep him warm for a day. Set fire to him and you keep him warm for a lifetime…

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