Britain’s Financial Services Authority is trying to develop a low-cost regime for providing financial advice, which will allow lower-income consumers to receive some level of financial advice.
The new regime would be limited to a proposed suite of “stakeholder” products, with the objective of making it easier for all consumers to have access to “risk-controlled” products, with low charges, that match their needs, while still providing an appropriate level of consumer protection.
The proposed suite of stakeholder products will include five types of product: cash deposits; medium-term investment products (which may be a collective investment scheme or unit-linked life product); smoothed investment funds; stakeholder pensions; and, child trust funds.
The products would all have parameters set by the regulator. For example, with medium-term investment products (similar to mutual funds or seg funds), the annual management charge will be capped, providers will be required to accept minimum subscriptions and the product must have a maximum of 60% invested in equities and property with the remaining 40% in less volatile assets such as bonds and cash. Assets must be well diversified across a range of different asset classes, markets, sectors and securities.
The FSA proposes a simplified selling model with three limbs:
- firms must be FSA-authorized and ensure their salespeople are competent to administer basic advice, but they are not required to hold formal financial planning qualifications;
- sales interviews will be pre-scripted by the firm and salespersons will have clear limits as to the issues on which they may advise and will be required to deliver warnings about the need to address financial priorities, such as debt. The sales pitch must end if the firm has reason to believe that the customer will not be able to afford any product, and the customer will be given a record of the interview;
- the products recommended must be suitable for customers’ needs considering their position on risk, savings objectives, significant financial priorities and obvious counter-indications.
“The FSA supports the aim of making it easier for all consumers to have access to stakeholder products and is committed to developing, if possible, a sales regime for these products that achieves this without compromising consumer protection,” said Clive Briault, managing director of the FSA’s retail markets business unit. “If implemented, these proposals would provide a new option for consumers who may want to buy the stakeholder products, but who currently have to choose between taking detailed financial planning advice or buying without any help at all.”
The FSA’s proposals are subject to a consultation period in which it will do further research and testing to refine the effectiveness of the process.