A report was published on 9 July reviewing the financial services industry. The review, put together by Ron Sandler on behalf of the Treasury looked at all aspects of the industry and made recommendations for change.
The conclusion Mr Sandler came to was that the financial services industry needs to be simplified, both in terms of the advice and services on offer and the products available to buy. Although the Government endorses the conclusion of the review, none of the recommendations made in the report are Government policy yet and more consultation will be required before any of the recommendations are incorporated into legislation.
As mentioned previously on our web site, the Directors of were invited to the Treasury offices to discuss the review. Our views positively leaned towards the indications of the review and we are generally pleased with the outcome. Many of the views expressed to the Treasury have been carried through into the review, especially in respect of the way advisers are paid and their general lack of technical knowledge.
believe that everyone should have access to quality and cost effective financial products, regardless of how much money they have. We also believe that people should not be bombarded with jargon or overly complex products.
We await the first consultation response from the Government with anticipation because, in our view, any changes made to simplify the financial services industry for consumers, has to be good news.
In summary, the Sandler review concluded that: Competitiveness in the industry does not work effectively, meaning that consumers do not get cost effectiveness or value for money. People are not saving enough, particularly the less well off. Part of the reason for inadequate savings has been blamed on the high costs involved. Questions were also raised as to why the financial services industry has not encouraged savings at the correct level.
The UK taxation system was too complex, which confused people and discouraged investors. The current tax regimes need to be simplified in order to encourage more people to save. Incentives for advisers were not aligned with those for consumers. Change was needed and there should be a clear market for advice and quality. Consumers rely heavily on advice from intermediaries but have little understanding of the cost of advice and therefore its quality. Commission paid to advisers opens up the area of bias and complexity. Only advisers that were not paid commission by providers should be termed 'independent'. Others should be termed 'financial product distributors'.
Simple, straightforward financial products need to be introduced so that comparison by consumers is easier. The costs of the product and costs for the advice should be separately identifiable. Changes should be made to with profits investments, making them easier to understand and compare. Additional 'stakeholder' products should be introduced with caps on charges and other stipulations. Evidence that advisers lack investment expertise needs to be addressed so that portfolio diversification and overall risks can be dealt with better. More stringent qualifications for investment advisers need to be introduced. Too much reliance is placed on the past performance of a product and over time scales that are too short, especially when the investment is designed for the longer term.
The industry regulator, the Financial Services Authority, should educate consumers so that they know what to expect when being advised. This would help them know what questions to ask.
The regulatory environment should be more open with the Financial Services Authority giving guidance on how rules and practices should be adopted by advisers. The FSA should also quantify what constitutes mis-selling and should educate consumers more in terms of financial matters.