FSA’s Retail Distribution Review must deliver better system for consumers and industry

29 September

David Lipsey, Chairman of the Financial Services Consumer Panel, has today written to John McFall, Chairman of the Treasury Select Committee, to emphasise the importance to consumers of the FSA getting the review right rather than getting it done quickly.  There are still a number of vital issues for the FSA to consider.

The key points of the letter are as follows:

• The Panel fully supports the proposed move to tackle the commission-bias of advisers.  We want advisers to serve customers on the basis of an agreed fee, rather than a fee which depends on the particular products recommended and the arrangements between the product provider and the advisers.
  
  

• The Panel is concerned that the large section of the middle market who are reluctant or unwilling to pay fees may just decide to do nothing and so under-invest in appropriate financial services products as a result.  The Panel fully supports a clear split between sales and advice, where the tied and multi-tied outlets are labelled as ‘sales’.  However, we think more could be done to encourage less expensive options, particularly for specific low-risk products.  We have asked the FSA to investigate options for guided sales to be introduced, although we want to be sure that there will be enough safeguards to ensure that consumers are sold suitable products. 
  
  

• The development of Money Guidance as a general financial information service by the FSA provides a great lead in to more detailed financial advice.  However we have emphasised that certain products, such as pensions, require in depth and specific advice based on individual circumstances and so people will not be able to get the answers they need just through Money Guidance and will have to be passed on to a further stage of financial advice.
  
  

• The Panel has stressed that the ultimate labels adopted by the industry and FSA for advice must be meaningful and understood by consumers.  Significant marketing and educational programmes will be needed to ensure consumers understand the differences in the proposed advisory/sales landscape and so behave as expected.
  
  

• The Panel welcomes the call to raise minimum professional standards (including skills and behaviours, as well as knowledge) and the enhanced role for professional bodies in raising standards.   The threshold for entering the advice arena has been too low for too long.  Raising professional standards will help the industry position itself as a service which has a value and is worth paying for.

David Lipsey, Chairman of the Financial Services Consumer Panel said:

“Good progress is being made by the FSA on developing a future system for financial advice which is free from commission bias – but it remains more important to get it right than to get it quickly.  The FSA must be confident that the impact of any changes will improve the situation for consumers and be workable by the industry.”

 

Notes to editors

1. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status.

2. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit. More information about the Panel's work is available on our website – www.fs-cp.org.uk.

3. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.

4. There are currently twelve members of the Panel as listed below (for further information on individual members, see the Panel's website – www.fs-cp.org.uk)

   Lord Lipsey (Chairman)
   Adam Phillips (Vice Chairman)
   Kay Blair
   Michael Chapman
   Stephen Crampton
   Caroline Gardner

   Jenny Hamilton
   Tony Hetherington
   Nick Lord
   David Metz
   Lindsey Rogerson
   Carol Stewart