As the wonderful first part of the Olympics hits the home straight, it’s time to get back to our desks and look ahead to the distribution opportunities brought about by the forthcoming RDR.
I’ve always believed that simplified advice will suit the mass market, especially when distributed through banks and building societies where the brand associations give kudos to the offering.
Legal & General is a good example of how to get your distribution right as its single ties to building societies gives L&G access to more than 75 per cent of UK building society customers offering low-cost investments that passively follow the markets with other suitable products.
But what will ‘official’ simplified products look like?
Fellow columnist Alan Lakey believes we will have a raft of ‘McProducts’ sold like fast food, whereas I’ve always believed it is more appropriate to have slow food principles applied to financial products. Source the best product you can afford from the whole market, ensure the menu suits those eating, slowly cook, checking occasionally, stir a few times until cooked then lay the table beautifully.
The interim report of the Sergeant Review of Simple Financial Products recommends that a range of plain vanilla products should be introduced.
It recommends introducing an easy-access savings account, a 30-day notice savings account and life cover all covered by a common sense list of cost, access and terms – CAT standards similar to what we’ve seen before.
There is further consultation on a simple income-replacement product for loss of income. The review recommends the premium is based on the age of the applicant and can include a four-week deferred period.
Many of us know income replacement policies have strict underwriting based on occupation and health. A lite version will look more like a PPI policy than a PHI policy and we all know what the regulator thinks about PPI sales!
As for the simple life cover to close the £2.4trn protection gap, if these products are not advised upon does the Government seriously think levels of life cover selected will be sufficient, 10 times the bread winner’s income for families? I think not. Life assurance must be sold not bought, otherwise benefit levels are woefully low.
According to Experian data, the target market for simple savings products is almost 30 million adults. The report says: “The ability to manage your finances effectively and choose the right products and services leads to increased well-being and a better quality of life, at every given level of income.”
This statement is quite obvious, but placing your spare income in an easy-access or 30-day saving account will now pay about 2.8 per cent. From 1989 until 2012, the UK Inflation Rate averaged 2.82 per cent. Are these, therefore, the right savings products?
The simple products will be kite marked as meeting the government’s approval. But the first line of simple savings product promotion will need to be “every single day your money, after tax, is worth less”.
This does not make financial sense, the majority of the 30 million people need low-risk, real investments for the longer term alongside a cash account to get realistic growth on spare income.
There will be no need to provide advice on simplified products and the Money Advice Service is tasked with raising consumer’s awareness of simple products with generic advice.
With a whopping 5.7 per cent increase in its 2012/13 budget, let us hope MAS does a better job on simplified products awareness than it has done so far. Shame there will be fewer financial advisers around soon to help the already confused public because of the RDR.
Kim North is director of guidetoadvice.co.uk