Last week, comments were due to be submitted to the FSA on the issue of the basic advice regime for stakeholder products.
This is hardly a new subject and many words have been expended in trying to deal with the Treasury's intention to introduce simplified products. Reading between the lines, one might perhaps conclude that the FSA is not totally happy with having to invent a middle way between information only and full advice. Such an approach is fraught with difficulty.
Those of us who can remember what it was like before regulation will recall people with a minimum of training (two hours in many cases) being sent out on the road to sell products, with a minimum of information being transmitted to the consumer. If there was any severe complaint, the ploy used was mainly to give the people their money back and say the salesman was at fault. Quite often the salesman was fired for allowing a complaint to take place. But for consumers who continued with the product, there appeared to be no redress.
Obviously, things are different now that we have regulation. But can we trust a person who has no qualifications and minimal training to go out there and engage consumers in what can be a fairly complex decision? If the Treasury had decided that there would be a simple stakeholder deposit account for starter savers, then we might be talking a different scenario. But we are talking about investments and pensions where the consumer might well not understand the risk to their contributions and might be over-influenced by what they suppose is an expert talking to them.
Bearing in mind the cost structure of these products and the need to sell large numbers of them with a minimum of contact with consumers, I feel sure some corners are likely to be cut. If this project is to go ahead, we must insist on at least two things. First, we should require a formal exam which at least establishes that the salespeople have the basics of product knowledge. This might put them in a better position to see when they are getting out of their depth.
The second point is related. If a salesperson or basic adviser is working under proper supervision within an authorised advisory firm, in cases where it appears clear that a consumer has issues which require full advice, then they should be referred on to a qualified adviser. Is that really likely to happen if we have freestanding basic advisory firms which are just trying to sell stakeholder products? I doubt it. So it is important that permission to sell these products is only granted to firms which have authorisation to give full advice.
I think the FSA still has a good deal of work to do on this proposal. Many consumers will not be aware of the downsides, particularly if they are given a fairly glowing account of the products by a salesperson. No amount of consumer awareness publicity is likely to change this significantly. If it goes wrong, you know whose reputation will suffer.
John Ellis is public affairs director at the LIA