The Treasury has launched a consultation on the creation of a range of ‘simple financial products’ to help consumers choose the right product for them.
‘Simple financial products’ would meet certain criteria – a voluntary code – and is likely to initially only apply to savings accounts and life insurance, critical illness and income protection products.
Financial secretary to the Treasury, Mark Hoban, said: “The government believes…there is a compelling need for the financial services industry to offer a range of simple products, to help consumers understand the choices they face, and to provide a benchmark against which all consumers can compare the many thousands of products in the market.”
The consultation document, published on 14 December, says that investment products where capital is at risk will not be initially included.
“Risk would add an extra level of complexity to the product design, as the design would have to weigh up how much risk individuals are willing to bear, both in terms of capital risk and risk to gains,” the document states.
The previous government introduced schemes to offer consumers simple choices for financial products. The first scheme the CAT standards (charges, access, terms) introduced in 1999 have been used for residential mortgage products and stakeholder products which had to meet compulsory standards on low charges, access and terms.
The stakeholder product range is mostly associated with pensions, partly due to what is referred to as the RU64 rule requiring financial advisers to compare a recommended pension product against a low-cost stakeholder version.
The government position is that it will not introduce a charging cap for ‘simple’ products and wants other organisations to take forward the design of the criteria.
A research report into previous initiatives produced for the Treasury by Professor James Devlin at Nottingham University found price caps made products potentially less attractive for providers; the government will rely on competition and transparency to generate ‘simple’ products that are low cost.
A key barrier to success of ‘simple financial products’ identified in the consultation is that the previous CAT and stakeholder schemes have a limited recognition level amongst consumers, when compared to the ISA brand.
Publishing the results of a survey on 15 December, Lloyds TSB said over half of British banking customers are more confident about how they manage their finances, with consumers appearing to be emerging from the recession with greater financial insight.
An ICM poll of over 2000 adults concluded people were more in control of their finances that in previous years, partly based on a decline in the use of bank account overdrafts. In the survey 57 per cent said they were more confident about how they manage their finances than ever before.
The government is trying to encourage greater financial responsibility by making it easier for people to make informed decisions. It is rolling out from spring 2011 a free, impartial national financial advice service provided by the Consumer Financial Education Body (CFEB).
The Financial Services Authority (FSA) Retail Distribution Review is also reforming how financial advice from Independent Financial Advisers (IFAs) is provided from the end of 2012 and points to initiatives at the EU level seeking to introduce standardised information to people buying investment products.
The simple financial products consultation closes on 25 March 2011.
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