FSA consults on a basic advice regime for stakeholder products
17/06/2004
The Financial Services Authority is to consult on proposals for a simpler, quicker and lower-cost form of financial advice to consumers. At present, the new regime would be limited to the Government's proposed suite of "stakeholder" products, details of which have also been announced today. The proposed regime would support the Government's objective of making it easier for all consumers to have access to "risk-controlled" products, with low charges, that match their needs and preferences, while still providing an appropriate level of consumer protection.
The proposed simplified selling model has three limbs:
The products recommended will have to be suitable for the customer to whom they are being sold. The advice will cover a specific range of products and the firm must satisfy itself that those products are suitable for the customer's needs by establishing his or her position on broad issues such as risk, savings objectives, significant financial priorities and obvious counter-indications. This will be considered to comprise 'advice' as defined under the Financial Services & Markets Act 2000.
The sales interviews are pre-scripted by the firm and the salesperson has clear limits as to the issues on which he/she may advise. The FSA will require the process to deliver warnings about the need to address financial priorities, such as debt, and to end if the firm has reason to believe that the customer will not be able to afford any product. The customer will be given a record of the interview and those responses he or she has given on which the advice has relied.
Firms must be FSA-authorised and are required to ensure that their salespeople are competent to administer basic advice, through a combination of training and supervision. Salespeople providing basic advice are not required to hold formal financial planning qualifications.
Clive Briault, managing director of the FSA's retail markets business unit, said:
"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.
"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 form only one part of the framework for providing stakeholder products. The Government's own consultation document and draft regulations, published today, prescribe charge caps for each product and it will be for product providers to decide whether the level at which the caps are set make it worthwhile for them to offer stakeholder products.
Customers will be able to take unresolved complaints to the Financial Ombudsman Service. In considering complaints, the FOS will take into account the specific rules on suitability for simplified selling, rather than those that apply in the case of full advice.
During the consultation period the FSA will do further research and testing with the aim of further refining the effectiveness of the process. The results of this work and any new information received during the consultation will provide important inputs to the FSA's final decision on whether to go ahead with a simplified sales regime.
Notes for editors
The FSA Consultation paper 04/11: 'A basic advice regime for the sale of stakeholder products', can be found on the FSA website.
The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.