HM Treasury and the FSA have got busy again regarding “simplified investment products” (FSA term) and “Sandler stakeholder product specifications” (HMT term). They have given a precis of feedback statements from the industry and also their initial responses to that feedback.
From Sofa's viewpoint, however, they both seem to be missing the point somewhat. Why do we need new products for those on low to medium incomes (the target market according to HMT)? These products will be expensive for the industry to produce if you take into account all the time spent on reading and responding to consultation papers, high-ranking officials from all walks of the industry attending meetings and forums in addition to HMT and FSA time writing papers, hosting meetings and drafting responses.
Add to this the actual company time to be spent on creating the products and then devising ways of marketing and selling them profitably within a charge cap (yet to be decided – more research has been commissioned) and it can be seen that these new products will really be an expensive luxury.
There are, in fact, sufficient products on the market already to satisfy the “savings” needs of the target market – most at a cost that should be acceptable to Government. Whichever product a consumer may need does, of course, as ever, depend on their circumstances – and we must add to these circumstances the possible need for debt repayment/counselling.
These products could be considered:
Cheap protection (for family cover, to cover a mortgage where it is not on an endowment basis) including, possibly, critical illness cover.
Cat-standard cash Isas (most of the target market could not afford £250 per month in savings anyway).
Income protection and/or redundancy insurance.
National Savings products.
Friendly society products.
The main problem is surely more how to get the target audience to actually take care of their financial needs rather than to just throw more products at them and, in a way, hope for the best.
Before more money is wasted on this new suite of products, serious thought should be given to different ways of using these resources to persuade the target market that they should actually be saving by using existing products if indeed their circumstances actually require it. In other words, we should be looking at ways of rekindling the savings ethic which used to be imbued into children from an early age not that many years ago.
It can be seen, therefore, that the problem is really more one of education than it is the introduction of new products. People need educating on the basis that there will not be sufficient money available to them from Government sources either in retirement or in case of earlier hardship and that individuals will need to look to themselves to provide for their future.
The demographics of the country make this obvious and the message should be hammered home by using the appropriate media.
The tabloid press is one obvious area, along with television advertising during soaps, sports programmes, etc. Local radio could also be a useful outlet. This will involve cost but surely the funding should mainly be from central Government, which will be faced with the problem in the future if the appropriate people do not start making their own provision.
There may be some scope for industry assistance to the extent that it would not be spending money on producing the new suite of products but, as ever, the industry must be confident of a return on its investment before assisting in this way.
Sofa believes it is time to rethink this whole area.
Brian Lawless is managing director of Sofa