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Providers told to make product terms clearer

Structured product providers are being forced to review their contract terms in the wake of new FSA guidance.

Last week, the regulator published final guidance following a review of structured products development and governance.

Between November 2010 and May 2011, the FSA reviewed seven major structured product providers and found weaknesses in the way they design and approve products. It looked at exit terms, termination terms and variation terms in contracts.It found providers do not always make clear how exit terms would be calculated, there was a broad discretion for providers to terminate the contract where a consumer had breached the agreement and terms of the contract could be changed without a valid reason being given.

The FSA expects structured product providers to make clear how exit charges will be set and has recommended providers give notice where possible that a change to the contract has been, or will be, made.

The review found providers were assessing distribution channels based on sales volumes rather than treating customers fairly. It says providers should take “particular care” in using nonadvised channels where products have complicated features.

It also reminds providers to carry out initial due diligence on their distributors and ongoing reviews and analysis of unexpected spikes in sales to ensure products are reaching the target market.

Providers should consider how they pay in-house salesforces and whether this increases the risk of misselling.

The FSA warns providers training sessions should be about educating advisers rather than “pushing products”. It says: “The primary purpose of training should be educational and should not be used as a marketing tool, or product push.”

Bloomsbury Financial Planning partner Jason Butler says: “I suspect there are gullible advisers who go along for training with the best will in the world, but it is often much more about explaining the upside rather than the downside.”

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