The industry regulator, the Financial Services Authority has been working on a range of 'stakeholder' products that can be sold to consumers with only basic advice, rather than the need for in-depth financial advice. Included in the suite of these stakeholder products will be a smoothed investment fund, very much like a with profits fund.
The fund works by holding back some of the profits in good years and paying them out in bad years. The FSA said that after testing the products on consumers, the concept was harder to get across and the fund has therefore been withdrawn from the suite, at least for the time being.
Our View
We believe that the suite of stakeholder products will be an absolute disaster, it will increase the number of mis-selling complaints and will not address any of the savings issues that currently affect the UK population.
A number of industry commentators have claimed that anything more complex than a typical bank or building society account sold without advice, or with only basic advice, is a recipe for disaster. We totally agree. Financial products must either be simpler (which is never going to happen) or consumers must be urged to seek advice from an expert.