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FSA confirms plans to cut projection rates

The FSA has confirmed plans to cut the projection rates providers and advisers are required to use to illustrate potential future investment returns.

Currently, firms must project three different possible rates of return – 5 per cent, 7 per cent and 9 per cent – for tax advantaged products such as personal pensions. The regulator proposes reducing these rates to 2 per cent, 5 per cent and 8 per cent.

The FSA also plans to reduce the projection rates on tax disadvantaged products, such as investment bonds and endowment policies.

These are currently set at 4 per cent, 6 per cent and 8 per cent but the regulator wants to reduce these to 1.5 per cent, 4.5 per cent and 7.5 per cent.

FSA director of conduct policy Sheila Nicoll (pictured) says: “Investors need to be able to trust information they receive and any suggestion as to how their investment might grow in future must not be misleading.

“We are proposing lower growth rates which firms may use but we are reinforcing the fact that these are maximum levels. Providers and advisers need to take a long, hard look at the rates they use, taking account of the underlying assets they are dealing with.”


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There are 18 comments at the moment, we would love to hear your opinion too.

  1. Providers and advisers need to take a long, hard look at the rates they use, taking account

    Excuse me, but who exactly specifies these rates ? The FSA need to stop making vague comments from the sidelines get some ‘B***S’ and specify exactly what is required rather than dropping vague hints. Same with risk profiles !!!! This wooly regulation is allowing peope to get away with too much.

  2. How about making providers and platforms produce Reduction In Yield figures on all quotes which will enable the adviser to provide the client with a true like for like comparison.

    Otherwise this is really a none event!

  3. FSA on the ball as usual. No self-respecting IFA has used the higher growth rates (or probably even the mid-growth rates) as a guide for the last five years.

  4. Andrew Whiteley 31st May 2012 at 11:33 am

    That’s going to put the cat amongst the pigeons for IFAs using Wrap with provider met Adviser charges and DFM run model portfolios within a bond wrapper. Could be looking at negative returns at low and medium growth rates!!!

  5. Brilliant idea to use half percentage points (not), why not just use 2, 4 & 6 ?, they are only projections after all.

  6. What the FSA appears to be really saying is that we should stop trying to get people to save for their futures, because we will always be in the same low return state that we are now in and savings will always be not worth the costs of bothering. Except for the deposit accounts, of course, being run by their good friends, the Banks.

  7. Let’s be honest, the FSA doesn’t have a clue about anything. If these rates are to mean anything at all (and they don’t) then the difference between the tax advantaged rate and the non-tax advantaged rate would not be a fixed 0.5%pa. Making an assumption (not necessarily a correct one) that the tax take on the growth of a non-tax advantaged product was 20% of positive returns then the difference would be 0.4%, 1% and 1.6% resulting in non-tax advantaged returns of 1.6%, 4% and 6.4%

    To ignore the fact that the tax take will be more significant as the returns improve is, in itself, misleading.

    All that said, and as implied already, does anyone give a hoot about the FSA figures – the only point behind them is to provide a comparison on charges between similar products from different companies.

    But whilst trading costs with OEICS and unit trusts being completely ignored when quoting TERs, even this narrow remit is seriously compromised.

  8. Working for a provider I know this is a vicious cycle. Our firm are not allowed to advise these rates on specific funds (as the FSA deem this advice), IFA’s can’t obtain growth rates through literature (as providers are not allowed to report the rates used) so how do the FSA expect IFA’s to be able to properly check funds for their customers or compare with other providers.

  9. Why all the fuss? The rates are maximums anyway. So pension providers should already be projecting at rates which are closer to the new maximums.

  10. I agree with Bill. why have we still got investments that do not quote there true cost.

    Whats the point of making changes to growth rates when the word “total” in TER’s does not mean just that.

    As far as all is concerned it is yet again another paper excercise. You might as well tell a client to pick a figure themselves, absolutely meaningless.

    It would be a simple thing to put in place just state all providers, including closed insurance funds must now include all costs borne by the fund in the TER charges.

    Where is the TCF in this?

  11. William Watling 31st May 2012 at 12:37 pm

    Anonymous above is correct these are ‘maximum’ rates. All investment projection rates have to be based on the assets the client intends to invest in, which can vary from provider to provider, platform to platform. I agree we need a consistent industry method to calculate the rates based on asset allocation & taking in to account adviser charges, interest rate disclosure, etc. Don’t forget asset based growth rates also change depending on term!

  12. Sheila Nicoll says: “Investors need to be able to trust information they receive and any suggestion as to how their investment might grow in future must not be misleading.” If this is correctly then it really shows just what an incompetant baffoon she actually is. Any rates no matter what they are set at, unless guaranteed are not worth the paper they are printed on, so they are ALL MISLEADING. Give me a break! Go and join your friends in something away from Financial services regulation so someone with an ounce of common sense (because thats all they need) can try their hand at it.

  13. OK, so I’m leaving shortly, and I am getting les and less interested in this day by but –
    When are the FSA/FCA going to realise that these projection figures MEAN NOTHING and are only useful for comparing possible charges?
    Remember the good old days when the upper projection rates on pension products was 13%? Well, we have been through recessions, economic boom and bust, Governmental collapses, failed economies and wars since then and guess what? 13% has been achieved on quite a number of products and investments.
    I have always pointed out that these figures, which most companies do not understand as the projections have to be constructed using rate charts supplied by FSA irrespective of some of the companies own charging structures, are no better at predicting outcomes than the crystal ball that I carry in the briefcase.
    I have yet to see a projection that matches true fund values year on year. I compare them to taking a photo of the Grand National after 3 furlongs and predicting the outcome.
    Projections based on growth rates that reflect current economic conditions are irrelevant, confusing and totally contrary to the FSA philosophy of TCF, which was rammed down our throats while they took their corporate eyes off less important things like RBS and the imminent collapse of the economy.
    If you want a projection, and most clients do, make ONE projection at a REALISTIC rate with a suitable warning – “This projection is for illustration only. The figures quoted are not a maximum or a minimum. You could get a lot more or a lot less from this product at the end of its term. The assumptions used are arbitrary.”
    Past performance is not necessarily a guide to the future. Unless, of course, you are the FSA.

    Roll on retirement!

  14. Let’s be radical. Why have any projections? If I bought some shares and asked how much they might be worth in 10 years time I’d be laughed out of court.

    How about companies telling investors how much they have charged each year in actual cash terms? Then we could see whether the service being offered was value for money

  15. Soren Lorenson 31st May 2012 at 1:59 pm

    Nice to see Sheila Nichol is still at the FSA. I had assumed that she had left like all the other RDR architects.

  16. Exasperated Me 31st May 2012 at 2:13 pm

    Having read what the FSA has been reported as saying and then looked the posts on here I can’t decide which side is the most unhinged.

  17. Philip Williams 31st May 2012 at 4:33 pm

    Agree with Trayner John. Illustrations are pointless and mean absolutely nothing. How accurate has a mid point growth rate been over the last 10 years.

    Plucking figures out of the air does not get us anywhere.

    It is more important that providers are clear and transparent with their charges.

    I rang Standard Life for an AMC on a with profit holding my client had this morning only to be told it was 0% and any fees were taken from the underlying fund. Where is the transparency here?

  18. Julian Stevens 1st June 2012 at 10:12 am

    I agree that potential investors need at least some indication of possible future returns, but a one size fits all approach hardly seems appropriate.

    Projections need to be take into account the type of funds being considered, their actual TER’s (which range from as little as 0.25% p.a. to over 2% p.a.), at least to some extent returns actually achieved over the past 5 and 10 years by each of those funds AND the level of annual adviser charge proposed ~ 1% p.a. will produce different projected figures from 0.5% p.a.

    But, as usual, what the FSA is proposing seems simply to be based on a lowest common denominator approach. Will the FSA ever manage to grasp what goes on out here in the real world?

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