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Simple truth about stakeholder suite

There are not many occasions when you hear the FSA, the consumer panel and the practitioner panel agreeing in public on something but that is what Sir Howard Davies, Colin Brown and Donald Brydon did at the FSA&#39s annual meeting last month.

What brought about this rare display of solidarity was the Government&#39s latest ideas for taking forward the Sandler report.

The report contained a lot of good sense. It was right to point its finger at opaque and obscure financial products, the unlevel playing fields that remain in regulation, the need to raise some training and competence thresholds and the importance of consumer education. All these highlight important failings in our industry today.

The trouble is that they are not easy to tackle. Instead, the Government has focused on the report&#39s Big Idea. The one that seemed easy to implement. The one that has the FSA and consumer and practitioner groups lined up in opposition – the suite of simple stakeholder products.

Nobody, of course, can be opposed to transparent, goodvalue products or to cutting out unnecessary red tape from the sales process.

The question to my mind is whether those are the real problems and whether the Treasury&#39s ideas represent a solution.

Consider, first, the price cap. The implicit logic is that the reason people do not invest enough is because the charges are too high but I know nobody who believes that to be the case.

The reasons that people do not invest are many and various but have a lot more to do with nervousness about markets and, in the case of Sandler&#39s target market, absence of spare cash rather than whether annual charges are 1 per cent.

Government price controls are inappropriate in financial services. They have a role only where there are concerns about competition, hence the price regulation of monopoly utilities. But financial services is a highly competitive industry with a variety of distribution channels and charging structures.

I am pleased that outgoing FSA chairman Davies agrees with this, at least to the point of having “personal doubts” about price controls.

The other big question is whether replacing the present conduct of business regime by a self-guided decision tree will radically reduce sales costs and increase sales. For many investment IFAs, I suspect the answer will be hardly at all.

It is clear, however, that the Government is pinning its hopes on distribution through the banks.

On the face of it, this seems plausible since lighter-touch regulation should be attractive to an industry with no tradition of conduct of business regulation.

But will it work? Banks are already selling Isas and other investment products through their branches so these new products may simply replace not add to them.

If the staff are trained only to sell the stakeholder suite, there will be no scope for them to sell other investment products so the jury must be out there, too.

So what should the Government be doing instead of stakeholder products? My prescription would include:

•Not scrapping the Isa tax credit and instead looking to build on the success of Peps and Isas.

•Developing schemes which make workplace marketing of financial products, combined with workplace financial education, more attractive.

•Most of all, stop pretending that there is no long-term savings crisis and boasting about how much has been done for pensioners. The clear message is: “We will take care of you so you do not need to provide for yourself.”

Of course, it is not just what the Government should do. The industry has its responsibilities, too, but that is for another day.


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