The treasury inspired "Sandler Review" of financial services investment and savings products suggested that the financial services industry should move to offering a full suite of single, simple charged, easily understandable products. The industry is generally against this saying that if they are only allowed to charge say a maximum of 1% (such as with the newer Stakeholder Pensions see the Stakeholder Cafe.com). They cannot afford to run the product line or afford to pay staff to advise on or administer the plans.
E.g. A saver investing £50 pm in a plan would only have a 1% maximum charge per annum. This would mean that the provider of the plan would receive in the first 12 months £600 in premiums. With a maximum charge of 1%, the provider could only deduct £6! Out of this £6 would be the costs to produce the plan, the literature, pay staff and manage the investment. It is estimated that it costs a provider anything between £200 and £400 per policy.
Nationwide has bucked the trend and said that it can live with these charges.
Our view
A difficult call. Providers for too long have deducted higher charges which have either been retained or passed on in the form of commissions to salespeople.
The industry argues that if this move is enforced the consumer will suffer as the industry will be forced to charge fees for advice and the consumer will suffer as they will not be prepared to pay for advice.
What a load of "tosh"!
We have agreed costs with all our clients up front since the first day we started trading. People from all walks of life are prepared to pay fees or look at commissions and work with us on the right deal for them and us.
Organisations who are against lower charged policies are those who operate high cost systems with poor efficiency and want the status quo to remain unchanged and the consumer to continue paying through the nose.
In this day of improved technology, communication and e-commerce generally, if an organisation has not improved systems to cut costs of acquisition of business then tough - they have had their cake.
And do not forget in ten years time when the above example's £50pm is no longer £600 pa but a £10,000 fund the deduction for charges will be £100 a year and growing over ten years that could be £500 or more in total, over 20 years ????
Who is in the money then?