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Nic Cicutti: Providers have killed off simple products

Nic Cicutti

What should we make of the decision by the Association of British Insurers to bow out of the work involved in helping create a suite of simple financial products, as first proposed by former FSA managing director Carol Sergeant four years ago?

News that the insurers’ trade body is pulling out of its involvement in the initiative came last week, with an ABI spokesman telling a journalist insurers would instead focus on potential product-related outcomes in the Financial Advice Market Review.

“We believe the industry and all stakeholders should remain focused on these work streams rather than continue to dedicate resources to the simple products initiative,” the ABI said. The statement, I suspect, sounds the death knell for Sergeant’s proposals.

Forgive me if I am completely unsurprised by this. Shortly after Sergeant first unveiled her plans, it became clear her vision of a suite of kitemarked products, including easy access and regular savings accounts, plus a 30-day notice savings account, as well as both fixed-term and whole-of-life life products, contrasted with the use which insurers and their hangers-on felt they should be put to.

While Sergeant was hoping for a limited palette of accessible products that could meet basic savings and insurance needs, the ABI and the Association of Mortgage Intermediaries tried to use the concept for their own ends, proposing a “basic advice plus” regime that would allow salespeople with a QCF Level 3 qualification to sell them.

In other words, never mind the needs of millions of consumers, how about reducing the qualification levels required so poorly-trained bank and insurance company salespeople can flog these products?

Salesforce sell-out

Rarely have Adam Smith’s 18th century economic and philosophical theories, of individuals who act in their own self-interest supposedly serving the collective interests of many, been so nakedly expressed. But the reverse also applies: if you cannot make Sergeant’s ideas fit your own demand for cheap dumbed-down salesforces to market your wares, why bother trying to make them work?

I am also not surprised because, amid all the endless talk about transparency and product disclosure, the industry has always fought bitterly against any attempt to rationalise its charges structures and make them understandable to consumers.

What also seems to be taking place is a collective rewriting of history, making out that the concept of basic products is in and of itself doomed to failure. So, for example, even a highly respected award-winning financial planner like Patrick Connolly at Chase de Vere felt moved to respond to the ABI’s decision to pull out of the work on the Sergeant proposals by noting that earlier attempts to introduce similar CAT-marked products were also unsuccessful.

“If you cannot make ideas fit your own demand for cheap dumbed-down salesforces to market your wares, why bother trying to make them work?”

Kitemark hopes crushed

For Patrick, and many other advisers I suspect, the trajectory is that of an ever-more complex product world which can only be intermediated for consumers by the activities of wonderful super-qualified advisers such as himself.

The reality is, notwithstanding the undoubted skills of advisers like Patrick, the true lessons of product complexity are not being learned. It was not CAT standards that failed but a collective industry boycott that saw them relegated to the margins of the product world.

I still recall the Association of Unit Trusts and Investment Managers hyperbolically describing the potential introduction of CAT-marked products as “a breathtakingly irresponsible act which cynically puts at risk the savings of the most needy in society”.

The industry’s boycott meant barely 50 unit trusts being CAT-marked out of some 1,400 available at the time. With the exception of Norwich Union, hardly any provider actively promoted the handful of CAT-marked funds they offered. Nor (naturally) do IFAs.

The irony was research found the small number of CAT funds in existence at the time did not do so badly, in performance terms. I remember the consultancy firm Fitzrovia producing data which found that over the period between 1999 and 2003 the index of actively-managed CAT-standard funds (those charging 1 per cent or less) outperformed non-CAT- standard funds with higher charges by some 8.75 per cent.

Of course, lumping all non-CAT funds together was not entirely fair as many were in the bottom quartile growth-wise and had been for a long time. Most advisers would not touch these dog funds with a bargepole.

But the key point remains a simple one: the industry is happy to spend endless hours telling us all there is a huge disparity between what people need to save and what they are actually saving. Trade bodies will also repeat, ad nauseam, claims of an “advice gap”, with large swathes of the population left without this essential service as a result of meddlesome regulations.

Yet every time someone attempts to come up with an idea that could end some of the confusion and uncertainty for consumers, you can always rely on the industry to kick it into touch. As Donald Trump might tweet: sad!

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. There are already products in the market place that can meet consumers basic needs. The only problem is that they are not kite-marked and as such consumers would have to do their own research to find them.

  2. I suspect you know Nic that the vast majority of IFA’s would welcome “simple” products since these tend to be transparent and low charges and fit beautifully with the post-RDR adviser/client relationship. It is IFA’s in the main who are pushing for more transparency around fund management charges and the (I suspect) lowering of these charges once they become less opaque. There is nothing for the fee-charging adviser to fear from simple products and I believe the resistance to these products comes from the providers themselves since it will undoubtedly lead to lower profits for themselves and even less control of the sales they would like?

  3. Do turkeys vote for Christmas?

    The ABI is a trade union for it’s members. There was no possible scenario whereby simple financial products, easy to understand by mere mortals, was ever going to upset and challenge the status quo as it was not in their interest. So we continue the ‘arms race’ of more and ever complex products masquerading as being ‘better’ for the consumer. Does anyone truly ask the consumer what is wanted or is the so-called customer research done to support an already agreed conclusion?

    It was once commented that the treasury held the view that if the ABI complained about something then the Treasury had got it about right; perhaps there is some mileage left in the Sargeant proposals!

  4. There already are “simple term insurance” and “simple whole of life” products available. They are called term insurance and guaranteed premium whole of life. The reason people don’t buy them is because they’d rather spend their money on something else. However we have a culture where it is acceptable to say “I don’t understand finance” but not “I’d rather spend my money on stuff than insure my family or provide for my retirement”.

  5. What sort of organisation under RDR really wants to fill this gap?

    Life insurance is already available and is directly marketed by many companies, probably because it pays commissions to make the effort worth the reward.

    Selling/marketing savings plans (even kite-marked ones) is a different kettle of fish. We have created a whole new world which centres upon the imponderables of attitude to risk and affordability amongst other issues. Even for a seemingly correct outcome, there can be a conflicting viewpoint, as the CMCs’ and consumer ‘champions’ well know!

    Let’s face it, you can pile ’em high and sell ’em cheap and make some money maybe (probably only if you are the product provider though), but there will come a time when you pay for it if you have not genuinely identified each and every customer’s needs and documented such.

    That is the environment we live in and with all due respect Nic, you are lobbying to a deaf gallery, laudable as your views are.

  6. Even over simple products, the spectre of deemed unsuitability will always loom ominously.

  7. Simple products were killed off when the FSA took over and killed off the Industrial Branch! The FSA charges made it impossible for those companies to make a profit.
    Of course newspaper pundits and ambulance chaser firms haven’t helped with endowments.

  8. Their are simple products available, as other commentators have previously stated. Term assurance is an infinitely simpler product than your average B&C or pet insurance policy yet people regularly buy the latter but not the former.

    Investments and pensions are another story, as soon as you add funds into the mix no amount of simplification is going to keep the FCA happy. There is an advice gap that needs to be filled in order to help the wider population. Yesterday I was happy to help a 23 year save into a pension, we charge by the hour so I pointed out the cost based on the bare minimum work required but it was the equivalent to 2 years of contributions.

    • You say “Yesterday I was happy to help a 23 year save into a pension, we charge by the hour so I pointed out the cost based on the bare minimum work required but it was the equivalent to 2 years of contributions.” – So, how much is he contributing and your charge ?

      • He wanted to pay £25 – £30 per month, to be fair £720 is a bit more than we would charge but when I told him it would be 2 to 3 hours work he didn’t want to pay us. He still could do with advice but he wont be able to find anyone that will do it for him at a price he can afford.

        • If a client came to me with a nickel and dime budget of no more than £30 p.m. for any sort of savings plan, I’d tell him as politely as possible that we can’t be of assistance (and that I can’t think of any other advice firm that might be able to). It would be a very short conversation.

          • That’s the situation we’re all in. We can’t make that sort of advise workable unless the client is willing to pay a significant fee. How many with that kind of budget are?

  9. I think Nic is being a tad disingenuous.

    Finance isn’t simple. You may as well ask for simple brain surgery. Savings accounts? Well today you would be just as well putting your money under the mattress. Even then the comparison with all available offers is far from simple. That’s what makes a market – competition. And competition complicates.

    Life assurance. Surely you jest? Single life? Joint Life? Life of another? In trust? What kind? How much to insure for? How long for? Ignore these and your punter could well be wasting money.

    Life is complicated. Live with it.

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