One of the strengths of the financial services industry is its enormous diversity. At one end of the scale we have the globally important wholesale financial markets based in the City of London. The evidence suggests that London remains highly competitive in wholesale markets, with a strong skill base, a well regarded regulatory system and a culture that copes well with the almost constant changes that seem to be the hallmark of international financial markets.At the other end of the scale are the providers of retail financial services. Here, by common consent, things have not been going so well. The industry complains about a mounting regulatory burden. The regu- lator complains about an industry that has been slow to learn from past mistakes and keeps on blundering into fresh scandals. Major problems with personal pensions have been followed by similar problems with endowment mortgages, split-capital invest- ment trusts and precipice bonds. While the industry and the regulator squabble, however, savers are deserting the industry. Two things now stand out in our long-term savings market. The first is that the consumer simply does not trust the industry any more. As Ron Sandler – who did a major study of the savings market for the Treasury – has pointed out, the average saver now trusts his local supermarket more than many of our biggest financial institutions. The second is that in an environment of low inflation and low interest rates, the industry is finding it very hard to offer savers, particularly savers of modest means, a competitive return. If we want people to save more and we want a prosperous and dynamic savings industry, it is clear that there have to be some fundamental changes. One of the first things that the industry needs to do is to look at the information it provides to consumers. The link between most recent scandals is that savers were sold products that were much riskier than they were often told. The industry needs to work hard on developing simple risk indicators for products that leave savers in no doubt about what they are buying. The risk indicator should be prominently displayed alongside other important information about a product in a way savers can understand. That would make it hard for the industry to ever again be accused of misselling. It is not just in product labelling that transparency needs to be improved dramatically. With depolarisation being introduced, if the industry wants to regain consumer trust it needs to be much more open about commission payments and other costs. Many savers will be surprised to hear, for example, they are still paying for trail commission on savings products they bought years ago, possibly having never heard from the salesperson since. If the industry cannot convince them it is offering value for money then it needs to change. There is a pressing need for the industry to reconnect with the consumers who have deserted it in recent years. To help it change, I have proposed a forum bringing together the major players in the industry and the major consumer groups. The Treasury and the FSA will be represented and the first meeting is scheduled for this month. I am heartened that many of the more forward-thinking parts of the industry have strongly supported the new forum. They recognise things can not continue as the have and that the industry needs to adopt a much more consumer-focused agenda. The forum can hopefully help shape such an agenda. It will then be the responsibility of the industry to implement it.
All things considered, I think that the pension protection fund is unlikely to achieve anything at all but the closure of yet more final-salary pension schemes.
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