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?
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 firstname.lastname@example.org