At last, we have most of the information about the stakeholder investment products proposed by Ron Sandler. It is good that the Treasury has recognised that advice needs to be financed, albeit at a level of only 0.5 per cent. Nevertheless, we have been warned that if no advice results from the relaxation of the 1 per cent cap, we could find it dropped back to that level in future.
In the new optional basic advice regime proposed by the FSA, there is no menu of charges and a much scaled-down version of suitability based on a broad assessment of savings objectives, attitude to risk and financial priorities. Within this regime, fees will clearly not operate. If an IFA wanted to charge a fee on top of the 1.5 per cent cap, that would effectively be a move to the full advice regime, with all the implications that carries.
One cause for concern arises from hints dropped by the FSA that it might consider extending the basic advice regime to the distribution of other products. Bearing in mind the LIA's long-standing position that we need to move financial advice to a more professional basis, a basic advice regime based on scripts, information provision, limited guidance and no proper training or competence regime must be bad news.
The only ray of hope is that the FSA has no time programmed to consider extending the basic advice regime to other products. The public would probably not be ready for a greater degree of freedom to set aside the regulatory safeguards of the full advice regime.
What of existing stakeholder pension customers? They enjoy the 1 per cent cap but this means the scope for servicing is limited. Will the industry move these customers on to the new 1.5 per cent structure? What pressure will the FSA put on companies to rationalise arrangements so stakeholder does not have two connotations? The answers are unclear.
Is the approach adopted by the Treasury flawed? I think much will depend on the reaction of providers to the long lead time to any likely profitability from stakeholder products. We can only wait and see.
One cannot help but wonder whether people who theoretically espouse a free market solution can justify what is coming through and what will be the European reaction to the restrictions imposed by the Government and FSA. Would it not have been simpler to offer a highly incentivised deposit account with conversion options to reluctant savers? Or even an adult trust fund?
John Ellis is public affairs director at the LIA