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
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'
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
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
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
Perspective, p24; Decision trees, p36
The FSA's Approach to the Regulation of the Conduct of Stakeholder
Pensions Business, May 1990, is available direct from the FSA or from its
website at www.fsa.gov.uk