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Trees not a crowd for consumers

Last week, the FSA set out its ideas for regulating the selling of

stakeholder pensions. We want to hear what the industry, consumer groups

and others think before we consult on formal rules and guidance later in

the summer.

Stakeholder pensions can only be sold if they meet the minimum standards

laid down by the Government. We have taken the view that these minimum

standards significantly reduce risks to consumers.

Now the FSA has to consider how best to design a regulatory regime using

the full “toolkit” it has available to achieve a balanced outcomein terms

of appropriate consumer protection. The FSA plans to take a proactive

approach to mitigate risks and promote good choices by consumers. This is

what lies behind the ideas we have set out in our discussion paper.

Decision trees will play an important part in the selling process. They

need to be easy to understand and use, yet sufficiently comprehensive so

that consumers can have confidence in the outcome.

Decision trees are neither advice nor part of an advisory process. In any

case where the consumer needs advice, then advice should be taken. The

trees are not a substitute for advice. They are designed to provide

information and to help consumers decide for themselves whether or not to

buy a stakeholder.

On first sight, the trees may appear to be rather intimidating and there

may also appear to be more trees – 11 in all – than some may have expected.

In fact, our market research has indicated that consumers are not fazed by

the trees. It is also important to remember that no consumer will have to

face all 11 trees – there are five for the employed, three for the

self-employed and three for those not in employment.

The decision trees are new in concept as well as in their application to a

particular product. It is important that allthose involved let us have

their views about how we have designed them and how we have suggested they

should be used in the selling process.

The results of our market research will be an important contribution. We

have yet to take into account all the results of this research, so the

decision trees we have published in the discussion paper are still not

fully developed even from our point of view.

Because of the pivotal role decision trees are expected to play in the

selling process, we have taken the view that the FSA should prescribe the

trees to be used rather than leave firms and advisers to devise their own.

Decision trees are neither a marketing nor competitive tool. They are a

means of providing facts and information. It would not be in consumers&#39

best interests to face competing decision trees. The questions asked should

be the same for all.

Given that decision trees are not advice, nor part of the advisory

process, we have asked ourselves whether it is necessary to require only

those competent to give advice to take consumers through them. We have

taken the view that, provided the person taking the consumer through the

decision tree is doing simply that and that the consumer is referred to

advice whenever the need for it becomes clear, he or she does not need an

advice qualification.

Thus, we have suggested that, subject to proper supervision and control

systems being put in place, taking consumers through decision trees does

not require the time of an adviser.

Having been taken through the decision tree (with no advice having been

given) and arrived at an outcome, consumers must have that outcome

confirmed. This should make it clear that no advice has been given, so no

recommendation has been made as to whether or not a stakeholder is


If the consumer is content to take his or her decision on that basis, that

would be the end of the process. In any case where the consumer is not sure

that stakeholder would be the right choice, they should be referred to

advice. Where advice is given and a recommendation is made on the

suitability or otherwise of a stakeholder pension, then existing rules

would apply.

Not surprisingly, there has been lively debate about decision trees among

those who will be selling stakeholder and those whose priority is to ensure

consumers are protected against risk. We all need to be clear about the

role of decision trees and how they will fit into the selling process.

It is with this in mind we decided to set out our own ideas for discussion

before we formally consulted on detailed rules and guidance. The ideas we

have set out demonstrate how the FSA feels it could achieve a sensible

balance between maintaining consumer protection and imposing requirements

on firms and advisers that add to the protections already built into the


We have to keep in mind throughout the need to justify our requirements

against the cost of their implementation. We look forward to hearing

industry views.

Perspective, p24; Decision trees, p36

The FSA&#39s Approach to the Regulation of the Conduct of Stakeholder

Pensions Business, May 1990, is available direct from the FSA or from its

website at


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