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School’s out

After a flurry of activity a year ago on formulating a public education strategy on investment, all seems to have gone quiet.

Fund managers and IFAs are left wondering what direction the much-vaunted financial capability strategy is taking and how they are supposed to describe complex investment issues to customers.

The FSA has been forced to admit that many schemes will not be ready until much later in the year. A report published last week says: “The steering group was concerned that this could be perceived externally as a lack of progress.”

The IMA acknowledges that progress is slow and updates from the FSA have been scant, particularly considering the pressure placed by MPs to ensure that consumers are given better and clearer investment information.

Following concerns over lack of understanding of financial products, last year the FSA began to develop a wide-ranging plan, building on the work already carried out by the Personal Finance Education Group. It established working groups, including high-profile figures from the industry, to develop schemes aimed at giving the public the knowledge they need to make correct financial decisions.

Seven priority areas were considered to be schools, young adults, work, families, retirement, borrowing and advice, recognising that different audiences have varying needs.

At the FSA steering group’s next meeting on January 31, time has been set aside to focus on product delivery. Last week’s report says: “In this way, it can consider where the quick wins are and how the communications plan should link to the delivery of products.”

Yet advisers and fund managers acknowledge that it will perhaps take a generation before consumers start to understand financial products.

Arguably, the investment industry faces the toughest task of all sections of the financial community. After the failure of split-capital investment trusts and with-profits bonds, it is the area most in need of a return of consumer confidence but it is also the most complex area to understand.

The growth of fund supermarkets has brought hundreds of funds within easy reach of the retail market at competitive prices. But M&G chief executive Gary Shaughnessy believes fund firms have often been guilty of failing to understand consumer needs.

M&G has embarked on a mission to produce spin-free guides and regularly speaks to investors about what information they want. Shaughnessy says: “We have found that investors just want access to good quality information that tells them how the fund works and what the risks are. If we can give them this and keep them updated quickly should any of the details of the fund changes, then we are doing a good job. Investors know and want to have better access to information. Investment houses have to give them this.”

Many companies concede that investment advisers have some way to go before they fully appreciate the kind of information that investors want. They admit that the runaway bull markets of the 1980s created a culture where advisers would sell any products because most would make money. When the technology bubble burst and markets plunged, advisers gradually realised how significantly consumer confidence had been dented.

The drawn-out Treasury select committee proceedings into restoring confidence in long-term savings may also have had a negative effect as revelations and allegations of misselling did little to inspire confidence in advisers.

Chelsea Financial Services managing director Darius McDermott is encouraged by the noises that the investment industry is making although he believes the Government and regulators need to kick product sellers into action.

He says: “You have two roles when you are an investment adviser. One of them is to sell, because that is where you make your money, but the other one is to ensure that the client is kept well informed.

“These work hand in hand together and so getting the balance right between the two is important.”

McDermott has long advocated teaching schoolchildren about investments and believes that there is a role for advisers to play.

He says: “I see no reason why IFAs cannot go into a school and explain to pupils about some of the financial decisions and products they will come across in their lives. It is a life skill.”


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