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FSA bids to simplify with-profits jargon

The FSA is cracking down on how life offices market and provide information about with-profits policies, citing new research which shows that consumers do not understand the products.

In the third in a series of papers it has released as part of an overall review of with-profits, the regulator is proposing to simplify the jargon used to describe the products.

The paper, Disclosure to Consumers, says investors rely heavily on advisers and the reputation of providers when choosing products. It says IFAs are in a position of “great power” because of consumers&#39 lack of understanding.

Research conducted by Conquest Research for the FSA reveals that understanding of with-profits is generally poor, especially in terms of key features such as bonuses and guarantees.

It points to a long list of terminology, including terminal bonus, market value reductions and smoothing, as prime candidates for clearer explanation. While recognising the unavoidably technical nature of aspects of with-profits, the FSA says that by simplifying some of the jargon, consumers are more likely to find the literature more accessible.

The FSA says one way forward would be to have two tiers – “headline information” for consumers and more detailed information for advisers and more informed investors.

Informed Choice managing director Nick Bamford says: “Consumers do not want to understand with-profits, they are more interested in results. It is a bit emotive to use a word like power. They should use words such as duty and responsibility.”

Scottish Equitable manager of business development Steve Cameron says: “Already, half the market in terms of volume is embracing these concepts under the Raising Standards initiative. I would hope everyone else will do so as well.”

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