Policy
Response
Simple Financial Products
Response by the BSA|
Contact: Sharon Chapman Date: 24 Mar 2011 |
Print page | Email |
We suggest the simple financial products initiative needs to be viewed in the context of two FSA initiatives; namely, the Retail Distribution Review, scheduled for implementation at the end of 2012, and its discussion paper (DP 3/11) on product intervention. The BSA has not been alone in raising concerns about the impact the implementation of the RDR will have on the availability of advice to the generality of retail consumers in the mass market. We fear that such consumers will be denied access to affordable investment advice under RDR and have advocated a simplified advice model as a means of ensuring the mass market has access to affordable advice.
It seems to us that simple financial products can have an important role to play in a simplified advice model – to the extent to which the characteristics of simple financial products are prescribed, the level of advice needed by consumers purchasing such products will be reduced.
So while we can understand, at one level, why HMT has identified cash savings products and income protection products as the initial candidates for its simple financial product approach, we see the main potential benefit for consumers to be in other products – i.e. those covered by the RDR, for which a simplified advice approach can deliver most value.
In the case of cash savings, the potential detriment to customers in making a poor product choice is much lower than products where their initial investment is at risk. Moreover, there already exist a very large number of savings products that would appear to satisfy the “simple” criterion - it is difficult to think of a financial product that is simpler than an instant access savings account – so, prima facie, it would not be necessary to develop new savings products. Rather, what would be needed is a re-badging of existing products and we are not clear how far forward that would take us.
The Treasury is correct to be mindful of past attempts to create a suite of simple products and to learn the lessons from CAT standards and Stakeholder products. We suggest it should also learn the lessons of previous government-designed products such as the Child Trust Fund. CTF providers’ willingness to embrace the simple products initiative will inevitably be coloured by their experience of the alacrity with which the CTF was withdrawn.
The BSA is broadly supportive of HM Treasury’s main objectives, to help people understand what products they need, to help them make better choices, and to encourage more effective competition. However, we do have difficulty in understanding what outcomes HMT is seeking and in particular what would constitute a successful outcome in HMT’s view. We suggest this will need to be articulated much more fully than has been the case so far.
If one of the aims of the SFP initiative is to increase the take up of certain products, then savings accounts seem a strange place to start, in that these products already have a high level of penetration - 63% of the [adult] population have a deposit or savings account [Source: IpsosMORI/Mintel December 2008]. Recent surveys suggest that people’s ability to save (i.e. lower income growth) will limit saving, even where people have the desire to save.
If simple products for deposit accounts were aimed at those people who do not currently save, it may be easier to measure their success in the longer term. In the shorter term, however, it may be difficult for those on lower or reduced incomes to increase their saving capability.
The full response can be accessed via the link below:
