MANCHESTER, 25 FEBRUARY 1999
Howard Davies
Chairman, Financial Services Authority

The landscape of personal saving in this country is about to change dramatically. At the beginning of April out go PEPs and TESSAs: in come the ISAs, Maxi and her small sister Mini.

This change may cause a major shift in savings patterns, perhaps quite quickly. It is likely that more small savers will be attracted into equities, over time. And the Government’s charging limits on CAT-marked products are likely to put pressure on the industry’s costs.

That is a problem for you. It may well generate significant change in the structure of the market. My concern is to ensure that these new products, and the changes they bring, provide a better deal for savers and investors. Regulators need to do what they can to prevent mis-selling, where advice is given, and to promote good buying, where it is not.

It is vitally important that investors, particularly new investors, properly understand the terms and conditions of ISAs. Furthermore, that they understand what CAT-marks do and do not guarantee – that they are not a guarantee of investment performance, in particular. We do not want lots of small savers with modest resources attracted into equity markets if they may need to get at their savings quickly, or indeed if they would be far better advised paying off a high interest credit card bill. Attracting inappropriate investors into ISAs is not in our, their or your long term interests.

So banks and other financial institutions need to ensure that their sales literature is clear and accurate, and that their sales forces are properly trained. The initial signs are somewhat mixed. We have seen some excellent explanatory material. Indeed we have produced our own guide to ISA’s. But we have also seen some worrying signs in the press of poor answers by sales people to straightforward questions. Our own town meetings with investors have shown that many people are confused about the implications for their existing investments and about the tax treatment.

We have also seen some marketing of so-called "ISA feeder accounts" which look misleading, at best. I hope that all financial institutions marketing ISAs, particularly those who are offering advice on them, will make a particular effort in the coming weeks to ensure that their people are up to speed. We do not want ISAs to begin with a bout of mis-selling.

Institutions will need to take particular care in advising people with PEP-backed mortgages, or personal pensions, where the issues can be quite complex.

Where ISAs are sold without advice, as is likely to be the predominant route, we are not talking about mis-selling. But the need to give clear information remains paramount, and we shall be looking carefully at the advertising and marketing material put out.

I believe that the Government’s aims, the regulator’s aims and the industry’s aims are essentially the same. We all want to encourage appropriate saving, and to allow small investors to benefit from the opportunity to invest prudently in higher return instruments. It is vital that that laudable objective is not tainted by poor selling and marketing practices in the crucial early stages. I hope that the lessons of personal pensions mis-selling a decade ago have been well learned by the industry. Financial institutions will have even less excuse for getting it wrong this time.

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