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Too much of a good thing?

Consumers like a range of options when deciding on financial products, but is too much choice a bad thing?

The FSA seems to think so. It is considering limiting product choice to consumers, blocking access to complex products and intervening on pricing.

FSA chairman Lord Turner last night told the regulator’s financial capability conference in Cambridge that too much investment choice can lead to consumer confusion and prevent consumers from acting for fear of making a bad decision.

To illustrate his point Turner used an example about jam.
He said an experiment was set up in a supermarket with two tasting stands – one had six jams and the other had 24.

Turner said although more people stopped at the larger stand (60 per cent compared to 40 per cent) customers at both stands sampled exactly the same number of jams.

And 30 per cent of people at the stall with fewer jams went on to purchase a product, compared to only 3 per cent at the larger stall.

Turner said this shows that given too much choice consumers often prefer not to act at all for fear of making a wrong decision and that too much choice causes confusion.

Turner said “radical questions” need to be asked, including whether there can be too much innovation in some markets, with complexity acting as a barrier to understanding.

Turner also speculated on whether some products are too complex to be sold to consumers at all and if the FSA should intervene on pricing, at the expense of access to the market for some people.

But is it right to limit what is available to consumers based on a belief that they will be scared away by innovation and are not sophisticated enough to understand what they are buying?

Do they necessarily need to understand how their investments work, if they have good financial advice and are receiving regular reviews from their IFA?

Should consumers be mollycoddled by the regulator? And is it right for the FSA to control pricing?

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There are 16 comments at the moment, we would love to hear your opinion too.

  1. Too much of a good thing
    Can you really compare jam with financial products then act on the alledged out come? if this is the best the FSA can come up with its time to question their competance. Having failed to prevent the financial meltdown (one of the jobs they are paid to do) what is the point of their future existance. Pointless initiatives rolled out one after another only add cost of financial products without adding value. It may be this is just another step to kill off the independent advice sector by reducing choice down to the point where there is no choice and no need for advisers thus ticking another box on the FAS’s wish list.

  2. Julian Stevens 15th July 2009 at 7:13 pm

    Too much of a good thing?
    Lord Turner is quoted as having said that “radical questions” need to be asked, including whether there can be too much innovation in some markets, with complexity acting as a barrier to understanding. Perhaps Lord Turner should look to his own ship and listen to the throng of radical questions being raised by those the FSA claims to regulate. The view out here is that there’s far too much “innovation” at a regulatory level, with complexity acting as a barrier to understanding and straightforward good practice. But will the FSA listen? Does it ever?

  3. John Blackmore 15th July 2009 at 7:25 pm

    Product Regulation
    Good to hear that the FSA are moving towards Product Regulation. For over 20 years one regulator after another has tried to regulate “advice” when all along they should have been regulating the products which do the harm. Can you imagine a client with a high tolerance for risk being allowed to buy a car with no brakes or no head lights ? If someone wants to go off piste and buy non regulated then they should be free to do so but without any Regulatory protection or come back. Polarization – Regulated Products v Unregulated. Advice will exist but only for possibly 5% of the market with complex needs. The remaining 95% simply need regulated products which they can be sold.

  4. What Price A Regulator
    Was this tongue in cheek or was it a bloody cheek? The stench of hypocrisy hangs heavy in the air when we have the FSA discussing intervention in pricing when advisers clamour for an intervention in their ever-increasing expenditure. The regulator has no business involving itself in product pricing – that is the job of free markets.. The fact that the one soiled attempt with Stakeholder pensions ended in humiliation should serve as a lesson to all bureaucrats who are tempted to intervene in areas best left alone. Can you have too much choice? Interesting philosophical debate but not really relevant to advisers because it is the advisers responsibility to make a recommendation and not leave these concerns to their clients. Do the thousands of clients ar Skandia Life complain about their wide choice? i think not. Political posturing is all well and good but history shows that as regulatory intervention increasesthe appetite amongst consumers for interaction decreases. Surely this is nannying of an inordinate length.

  5. Turner
    Turner talks drivvle always as always will, he needs to retire to the moon as this is where he belongs. look at his stakeholder products.Now that works!!! NOT

  6. No and No!
    It’s the advisers function to recommend a short list of products to the client, which best meet their requirements and enables them to make an informed choice.

  7. Sampled the same number of Jams
    They may have sampled the same number of jams, but did everyone taste the same flavours? What tastes good to one is not necessarily the best for all. I can’t stand peanut butter, but I wouldn’t expect Mr. Tesco to take it off the shelf and make it unavailable for those that like it!

  8. Too much of a good thing
    Bearing in mind the FSA’s apparant understanding of Independent Financial Advice it is probably a surprise to them that we do not advise on jam.

    Clients Do not necessarily need to understand and rarerly know in detail how their investments work, if they have good financial advice and are receiving regular reviews from their IFA.
    They do not appear to have noticed that most complaints come from high pressure sales from direct sales forces, particularly Banks.

    Perhaps one day we will be able to concentrate on giving good advice to our clients rather than the latest whims of the FSA.

  9. Too much choice
    I think financial products are more like chutney than jam. Still, Lord Turner knows a lot more than me, I’m sure. So if he says that too much choice is a bad thing, based upon his jam experiment, he must be right. Unless he is a complete buffoon !

    The fact is, the FSA and its massive amount of regulation, together with continually changing rules (on tax etc), and the way in which the regulators have deliberately castigated the industry over the years, has done terrible harm to customer confidence.

    If the FSA believes ‘less is more’ then why do I have to produce 30 page reports just to sell an ISA – this is the reason why people don’t act.

    Lord Turner – stop pontificating about jam when you know sh** about anything.

  10. We know best!!
    What I find so hypocritical is the way in which the bureaucrats at the FSA seem to assume that they have some God given right to tell the consumer what they should be doing, when they have so spectacularly failed in their own jobs.
    Taking the food analogy on board the FSA is running around like a headless chicken. Would you assume from seeing such an animal in the farmyard that this was a way to rear livestock?

  11. Do as we say and not as we do!!!
    Well what can i say? The FSA have really lost the plot now. you can just imaging the sales process if the FSA regulated the sales process for selling jam.

  12. To much of a good thing?
    I agree with the FSA. Look at Unit Linked Mortgage Endowments and Unit Linked Whole of Life plans, innovations in the 80’s. How have they turned out to be the worst thing to be sold when clients should have been sold simple products like term assurance to support a repayment mortgage and whole of life insurance with no investment element. Learn from history. Complicated products are only needed for the few wealthy people.

  13. No Risk allowed
    yes, the regulator should say what the consumer is allowed to buy & therefore what is allowed to be recommended. The consumer should pay the regulator for this limited choice protection ( or is that restricted ) Once the FSA get involved in this way the consumer will see what a bunch of nutters the FSA really are.The only organisation that will put up with this are the banks who will sell huge volumes of anything at all ,as long as they get a sale and targets are met.. Advisers will just give up because most of them would prefer to offer marmalade as well as jam. . That way when the consumer can only buy pre approved fsa fodder there should be no longer be a need for the FSA . Perhaps they could move on to regulating choice in the supermarkets, after all a consumer may buy co co pops when what they really should be buying is bran flakes. This should not be allowed. After all ,the poor consumer, who can not be expected to know any better or take any responsibility may become constipated & then someone would need to deal with the final outcome! Over to you Mr Turner.

  14. The Choice Is Ours
    Adair Turner has quoted the famous experiment at the famous experiment conducted at Draegar’s supermarket in California by Iyengar and Lepper.

    Does the FSA feel that financial services are commodities which can be easily surveyed and plucked from a supermarket shelf? If so, then much ofthe RDR content is explained.

    How does advice fit into consumer choice if this mentality is pervasive within Canary Wharf? If this is some kind of promotion for tied or multi-tied advice one has to wonder at how such a view fits in with the FSA statutory objectives, particularly promoting public understanding of the financial system.

  15. Roger Holloway 21st July 2009 at 4:17 pm

    If we go for simple products as likened to Jam, then pray tell me why we need a level 4 qualification ie (degree level) or as some wag said last week a level 5, (honours degree) should be the proper benchmark. I am an advocate of level 4 qualifications by the way.

    Where is the joined up writing??

  16. What Choice
    IFA has has been caught in a perfect storm. The way to good independent financial advice is been smashed all over. IFA has no choice in the matter, whether it be product regulation, choice of products, commission or fees whether charged by us or the regulator. We are told what the FSA fees will be and if you can’t pay it tough luck, its bye,bye to you. I am very surprised that so meny advisers are still getting upset when another FSA Chairman who comes along on this revolving conver belt and decide to put another dent in the hul of our battered IFA ship. The FSA should try and understand that good advice is not like tasting jams. Customer needs reassurance from people they trust. The FSA is treating customers as if they are stupid or under age and they cannot enter into a contract that is enforcable by law. In my opinion the FSA should use the jam analogy and take a good look at how they have destroyed the confidence of the entire financial industry. The consumer has no confidence inany product on the market and the financial services industry is been smashed to pieces in a perfect storm. He said there is too much choice. He forget that this is a market economy where supply and demand rule.

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