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FSA won’t give way on caveats for projections

The FSA has signalled it will not cave in to pressure from the Association of British Insurers to allow companies to continue using standard projection rates for cash.

The ABI held an emergency meeting to discuss lobbying the FSA to change its stance on projection rates after a strongly worded letter from FSA director of conduct risk Dan Waters to compliance officers, insisting caveats would not be tolerated.

ABI members have argued the benefits to consumers of changing projection rates will be trivial while the cost may run to tens of millions of pounds. The ABI asked members for evidence the FSA has changed its policy.

But FSA spokesman Adam Richards-Gray says: “This is not a U-turn. We have always stipulated that standard rates need to be revised down for products where the return is likely to be lower. Otherwise, we would be saying it is legitimate to apply misleading rates of return. That would be unclear and misleading for consumers.

“Caveats are inappropriate. Dan’s letter made our position explicitly clear. Firms need to be acting on this now and if we come back and they are not, then we will need to take appropriate action.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. You must be joking 3rd December 2009 at 4:03 pm

    I think Mr Richards-Gray should have a look at what “misleading rates of return” actually means.

    If he can name JUST ONE asset class that produces a consistent rate of return at ANY of the standard (or non-standard) growth rates, then he knows something the rest of the planet doesn’t!

    ALL PROJECTIONS ARE MIS-LEADING!

    It may also be worthwhile MM asking the FSA how on earth one is expected to meet with the requirements of the “pension switchig review” when certain companies, such as Standard Life, refuse to say what the actual growth rate being used is.

    They quote the rates of return based on each fund, but don’t provide the weighted rate of return being used for the actual projection.

    Treating Customers Fairly…

    Misleading projections – NO
    Unquoted projection rates – NO
    Not having to take account of fees (paid outside the contract) in projections – NO
    “Effect of deductions to date” being compared to an unavailable “NIL COST” investment – NO

    Its about time the FSA actually considered these misleading documents that we are forced to provide!!!

  2. For once, I agree with the FSA. All the historic data going back many decades tells us that the returns on cash never rival those from equities, bonds and property.

    Projections that suggest they might are as misleading as the FSA’s claims on its website about being an open and transparent regulator.

  3. Typical arrogance from the idiots at the FSA.
    They cost everyone millions and don’t care.
    Of course it is important that the lower returns on cash are pointed out to people (stating the obvious, one might think), but not to allow the information to be put out by some form of caveat is plain stupid.
    But what else do we expect from these idiots.

  4. So Dave, you think its idiotic to say that showing projections at 5/7/9% for ‘cash’ is not fair as it will give misleading information to clients?

    The FSA lad’s comments appears reasonable to me.

    Is your hatred of FSA blinkering you somewhat here? 🙂

  5. I remember pension quotations showing rates of 11% and 13% back in the last eighties. At the time 5 year pension with-profits returns on a £10,000 single premium business was yeilding annualised returns of around 21% (Clerical Medical and Standard Life). Then the markets tumbled, returns nosedived and a pension review ensued. The rest is history…

  6. Projection cause confusion. A standard projection rate of 7% takes no account of a market fall of 30% in any single asset class. Therefore in the “real” world the value of these projections can be open to question. Investments returns “do not” follow a constant increase and that differing assets classes will grow at differing rates and of course this should be reflected in their projection. However, to reflect this in an illustration would require many different projection rates, a different one for each asset class. I feel it would be far better to downplay the use of projections altogether and have a strong warning about the benefits of their use.

  7. It would be nice if the FSA released the information about the Lautro 31 false and misleading projections.
    The FSA is very good at criticising and making threats (I’m good at criticising the FSA), but rather than issue threats, would it not be betetr for the FSA to discuss and suggest a WORKABLE solution and one where the cost benefit analysis has been taken in to account?
    Come on Dan, suggest a workable solition please rather than issue threats.

  8. notbotheredintheslightestanymore 4th December 2009 at 2:06 am

    What is the point of using projection rates when the lack of standardation of historic returns is so wide of the mark. A brokers favourite UK Equity Income fund with a 10 year standardised annual return of 9.6% BEFORE charges has a TER of 1.74%. Do the numbers, or not as is usually the case.

  9. The problem here lies with decades of poor IT design at the providers, the FSA are merely reminding them of what they have stated before ad nauseum.
    If the providers had told the IT people what they wanted instead of accepting what was provided this mess would not have occurred. the focus on new business over all other issues is now coming home to roost its just a pity that the idiots who were inactive are now at home on pensions which do not reflect their contribution to society.

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