The Financial Services Consumer Panel has today warned the Government that its proposed product specifications for Sandler "stakeholder" products fail to meet the needs of low to middle income consumers. Indeed it believes there will be a real risk of misselling if the sales and advice regulations for these products are relaxed as suggested in the FSA's Discussion Paper 19. The Panel is therefore opposed to all three options for change set out in that Discussion Paper.

The Government's proposed new stakeholder products (a unitised product and a with-profits product) include stock market investments that involve short term risks to capital. And yet, the Consumer Panel believes that many of the target consumers have little appetite for products where there are risks to capital. They cannot afford to lose any of the capital sum invested, and so even cautious fund management may be inappropriate: the Government asserts that over the last 5 years only two cautious managed funds have lost money, but over a shorter timeframe of the last year, all such funds are likely to have lost money.

The Panel is therefore suggesting that a wider range of products should be included in the stakeholder range - particularly some which do not contain exposure to the stock market. The Panel suggests a cash savings vehicle, and also a scheme similar to the Child Trust Fund for adults, with similar government incentives to save (eg matched contributions or tax incentives).

The Panel also supports a capital guaranteed product being added to the Sandler suite. The Government acknowledges in its consultation that capital protection and guarantees are what consumers want. The Panel believes that there is a willingness among consumers in general to forego some of the potential gains of their investment in return for the certainty of retaining their capital.

The Panel believes that person-to-person advice is crucial to encouraging saving, and encouraging appropriate saving. A simplified investment product, even with minimum standards, may still be too risky for many consumers. So the Panel cannot support proposals for cutting down the regulatory protection for the Sandler products, unless there is some new means of assessing suitability and bringing that to the attention of consumers. The Panel is therefore interested in the Government's proposals for a financial healthcheck to be included in the "stakeholder" suite. The Panel has long been an advocate of the need to establish a service offering generic financial advice to consumers. Such an advice service could serve both to provide consumer protection in terms of suitability, and to encourage consumers to consider saving more - so assisting in the Government's long term aims.

Colin Brown, Chairman of the Panel said: "There are only two new products here. And neither of these would protect investors from losing some of their money. So neither is safe enough to sell without the normal suitability rules obliging advisers to 'know your customer'. However, it should be possible to develop more attractive products - especially with a capital guarantee - which consumers would rightly see as safe. And the best way of simplifying the sales rules would be to establish an advice service that offered portable fact-finds or 'prescriptions'."

Enquiries
Media:
Rebecca Tabor: 020 7066 0902

A full list of Panel news releases, publications and consultation response papers can viewed at the Financial Services Consumer Panel website at: www.fs-cp.org.uk.

Notes to editors