At last, the Treasury has ann-ounced the outcome of the price cap for the Sandler suite of stakeholder products and the FSA has issued a consultation on a basic advice regime.
There has been a wide range of responses from prov-iders as companies look at how the decisions will affect their business models. From a Norwich Union perspective, we see the move on the price cap as an important step forward. It is not everything that we hoped for but it is a substantial imp-rovement on 1 per cent and creates a range of possibilities.
It was clear that 1 per cent was not working for stakeholder pensions and that the cap had to change if we were to move forward.
The Treasury should be recognised for the thorough consultation process on the price cap and for taking on board many of the views of the industry and consumer groups.
The increase in the price cap is, of course, only one part of the equation. A key component to getting the Sandler products up and running and successful is getting the basic advice regime right and successfully implemented.
The proposed basic advice regime is good news. We bel-ieve this, combined with the increase in the price cap, will enable greater access to advice and savings products for a wider range of people who currently do not seek advice. There are a number of key areas of the basic advice regime which need to be clarified and while overall we support this initiative, there are some issues which we remain concerned about and will raise through the consultation.
Of fundamental importance for the basic advice regime will be the extent to which it takes cost out of the advice process. If the process is simple and straightforward and cost savings are realised, then, combined with the higher price cap, more companies will be enc-ouraged to manufacture and market the products. As it stands, the advice process is too expensive for the majority of people and something must change.
We welcome the idea that advisers selling the product range do not need to take external exams but that they will be subject to training and competence requirements. It is absolutely right that firms are authorised by the FSA and responsible for the advice given. This should ensure that high standards prevail.
We do, however, think that the training and competence regime needs to be appropriate for basic advice and there is a danger that the current proposals could be very costly. The FSA's indication that, if the basic advice regime is successful, it could apply to a wide range of fully charged products is interesting. If this happens, it could be the catalyst to opening up the advice market to a much wider audience.
We remain somewhat cautious in relation to suitability and how the FSA will apply this principle within the basic adv-ice regime. A concern relating to the new stakeholder pension is that the simplified process did not reliably identify whe-ther a consumer has access to an occupational pension sch-eme. The inclusion of the product in the basic advice regime must be subject to this issue being addressed.
We are pleased to see that the FSA does not intend to introduce requirements which effectively prevent the sale of fully charged full advice products in the run-up to the launch of the suite.
We believe it is also important that the suitability standard for fully charged products recognises that there will be two entirely different processes, with different costs attaching to each, and that advisers giving full advice are entitled to be remunerated appropriately.
The proposal to limit the range on offer to one product provider in each stakeholder category was surprising and one which could ultimately reduce consumer choice. We would like this changed so that consumers get a wider choice.
From an IFA's perspective, the basic advice regime should not be seen as a threat – quite the opposite. A basic advice regime for a simplified range of products enables IFAs to focus their efforts on clients requiring the full advice pro-cess while they can also look at developing a new client base for the simplified products.
We have a decision on the price cap. We have a proposed basic advice regime, we are in the final throes of the depolarisation consultation, pension simplification is rapidly approaching – the pieces of the jigsaw are finally coming together.
What we need now is simplification of means-testing,a boost to financial education and some general market confidence and hopefully we can start to make a serious dint in the savings gap and get the market operating efficiently for consumers and the industry.
Peter Hales is sales & marketing director at Norwich Union Life