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OUTSIDE EDGE: RAY MILNE

At last we have the details of the charge cap and simplified sales process for Sandler products. Now the hard work begins.

The proposed process requires careful consideration by potential Sandler distributors. As it is an advice process, the distributor will be liable for the advice given and the process therefore has to carry the financial risk of that advice. It is important that the process is robust and customers receive appropriate product recommendations.

An intriguing question surrounding the Sandler sales process is whether it will persuade more consumers to begin to save.

ABI head of regulation and strategy Francis McGee said in March that the biggest detriment that consumers face is lack of access to pensions and advice. The Sandler products and sales process provide an excellent opportunity to expand the market but it is unlikely to be primarily among the lower-paid, who still do not see saving as a priority.

The 1 per cent charge cap on stakeholder pensions has not encouraged consumers to take out schemes and has restricted providers&#39 abilities to effectively market the products, leading to a much lower take-up than the Government originally anticipated.

Although the market is currently too small to be economically viable for a large number of providers, the additional 0.5 per cent for Sandler products might allow the additional marketing spend required to develop the market but our concern is that the cap will still not allow for sufficient marketing.

Perhaps compulsory pensions are after all the only real answer?

Mass-market distribution and manufacturing capabilities will allow providers such as Halifax to operate within the limits of the price cap but companies without that distribution capability will have to look at investing more up front to reach those markets.

While many existing investors are likely to take advantage of Sandler, there will still be a major role for full financial advice.

Indeed, we see our existing advice channels as our most important distribution channel for the foreseeable future.

The most welcome part of the price cap is that it is expressed as an annual management charge only. We believe that this is a real advantage for the Sandler products.

Our products were redesigned several years ago to remove any initial or exit charges, including a bid/offer spread. This followed feedback from customers that such charges were confusing and made products too complex.

As customers did not understand the products, they could not see how they met their financial needs and so were less likely to buy them.

Following the introduction of our range of products with just an annual management charge, customers have found the products much easier to understand and therefore buy more of them. This has been a major factor in our being the fastest growing UK provider of life and pensions over the last five years.

While it will be a major challenge for the industry to manufacture the products and embrace the simplified sales process in time for the proposed launch in April 2005, it is hoped that customers will be able to understand Sandler products and therefore buy them.

Our success has been built on simple, understandable products and efficient distribution aimed at supporting highly qualified, productive advisers. Sandler delivers the product simplicity but we believe there are still significant questions over the proposed sales process and it is not yet clear if the products and process will deliver the results the Government expects.

There is a clear danger that Sandler will have the same impact as stakeholder pensions in that existing investors will switch their current products to Sandler and the actual target market will still remain disenfranchised.

The Sandler products and sales process will open the market to more savers but there is a critical need for further financial education. Without this, many people whose needs would be met by Sandler products will not buy them and the savings gap will continue to be a concern.

Ray Milne is managing director of Halifax Financial Services

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