The Government’s recent call for simple financial products could put simplified advice back on the regulatory agenda.
In December, the Treasury published a consultation which called on the financial services industry to develop a range of simple financial products for mass-market consumers.
The idea is that simple products would sit alongside existing products in a similar way to supermarket ranges branded as “essential” or “basic”.
The Government says simple products will not be subject to price caps which were one of the causes of the failures of previous simple product initiatives such as Cat standards and stakeholder products.
The consultation draws parallels with work carried out by bodies such as the Association of British Insurers and the British Bankers’ Association over the last three years to develop a simplified advice process. The FSA has made it clear it is up to the industry to come up with a viable proposal.
But Money Marketing understands that simplified advice plans have effectively been shelved at the regulator as it has not been satisfied with the models put forward so far.
Lansons public affairs and regulatory consulting director Richard Hobbs says the Treasury consultation could be the trigger to move forward again with simplified advice.
He says: “For three years, the FSA has shown a distinct lack of interest in engaging with the industry on simplified advice on any basis that the industry came up with.
“Some of the email traffic I have seen recently leads me to believe that, because of the Treasury consultation, the FSA may be thinking again about how it engages with the industry on simplified advice. It is possible the Treasury document will kickstart this.”
Cicero Consulting director and chief corporate counsel Iain Anderson says: “This is coming from the Treasury and the FSA is ultimately responsible to the Treasury. Until Treasury financial secretary Mark Hoban set this in motion in the summer I think the regulator had backed away from simplified advice. This puts simplified advice back on the agenda.”
ABI assistant director of consumers and distribution Peter Jolly believes the simplified advice process could help deliver the simple products the Government is calling for.
He says: “We believe straightforward products that serve straightforward needs, such as protecting one’s family, starting tax-free regular savings, joining a company pension scheme or choosing an annuity at retirement, can be more economically served by automated, simplified advice models.
“Our proposals are well known to the Treasury team responsible for the recent consultation and we hope will be incorporated into future development work in this area.”
A BBA spokesman says: “Something is needed to ensure consumers’ straightforward savings, investment and protection needs can be serviced. Simplified advice services could help deliver the simple transparent products currently being considered and it is therefore important that work on both propositions is aligned.”
The difficulty in marrying up simple products with simplified advice arises with where the liability lies on complaints.
In a speech last May, FSA director of conduct policy Sheila Nicoll said there would be no “get out of jail free cards” on simplified advice. Hobbs believes the debate over simple products will be overshadowed by the fear that if consumers suffer as a result of a simplified product sale either the regulator or the Financial Ombudsman Service will be quick to apportion blame.
He says: “The big stumbling block to all this is that unless the FSA and later the Consumer Protection and Markets Authority are prepared to make concessions, simple products are going nowhere because I do not think the industry can afford to run the risk. That is where the battle lines are being drawn.”
An FOS spokeswoman says: “What is important is that the consumer understands the basis on which they have taken out a simple product and whether advice has been given or not. It is already a familiar area to us to distinguish whether somebody has been advised or not.
“Our main concern is that it is made clear to the consumer on what basis they are taking out the product and we would look at any complaint that comes up down the line within that framework.”