The government, the FSA and industry and consumer groups today welcomed publication of the Sandler Review of the market for medium and long-term retail investment commissioned by Chancellor Gordon Brown.
Sandler's key recommendations include a set of safer, simplified stakeholder investment products and reforms to with-profits policies to make structure and management more transparent.
Calling for more stringent investment qualifications for financial advisers, Sandler says that “potential for adviser bias” is inherent in the current commission system. This system also leads to a “poorly functioning market in advice” and “incentives to focus on higher-income consumers”.
Sandler backs the main thrust of the FSA's proposals for removing the polarisation regime of financial advice. The review backs a new model for independent advice, whereby only advisers who are not paid by providers would be permitted to call themselves “independent advisers”.
Sandler says the complexity of savings products makes advisers the real customers for product providers rather than consumers. He recommends that commission payments are negotiated between adviser and consumer, not between adviser and product provider.
Mary Francis, director-general of the Association of British Insurers, says: “The Sandler report can help deliver confidence for consumers and stability for the inidustry.
“Many of Ron Sandler's ideas reflect best practice and new thinking in the savings industry. We particularly welcome his support for simpler products and less red tape.”
The Consumers' Association says Sandler's review “nails the industry line that it serves the consumer interest”.
It says: “Sandler has confirmed the CA's assessment of poor products, bad advice and failed regulation. Now is the time for industry and government to acknowledge the diagnosis of the problems and focus on the solutions.
“The proposals can reduce the sale of unsuitable products and go some way to addressing the quality of advice.”
At the FSA, chairman Howard Davies welcomed the review falling in line with the authority's own consultation on depolarisation, but warned that regulation of the sales process “must not become so stringent that it deters potential savers”.
He says: “We are happy with the general direction of the report's recommendations on products, regulation and consumer education.
“The suggestion of a simplified regulatory regime to cover the sale of stakeholder products is in line with the ideas put forward in the FSA's consultation on depolarisation.”
The FSA and the Treasury will consider how best to take forward Sandler's recommendations in September and plans to consult on a simplified sales regime during 2003.
Ruth Kelly, financial secretary to the Treasury, says: “This report sets out a vision of a simpler, more transparent and more competitive medium and long-term savings industry which the government endorses.
“The proposals represent a real opportunity for the industry and others to think radically about the provision of financial advice. They offer the potential to extend access to low cost, good quality, generic advice to the mass market.
“We will be consulting consumers representatives, the industry and the FSA on these stakeholder products and their design. We will be working closely with the FSA who will separately want to consult on the regime for their sale.”
In summary, Sandler's key proposals are:
- The introduction of a suite of simple regulated products, with capped charges, restrictions on investment profile and the ability to exit on reasonable terms. These products would be sold without the need for regulated advice; the regulation of the products themselves would provide the basis for consumer protection.
- A clearer and simpler structure for with-profits products. Although this cannot be delivered overnight – it will require consultation and staged implementation over time – it offers a sustainable long-term basis for future policies where performance is transparent, unnecessary jargon is removed and effective competitive pressures can operate properly.
- A new model for independent advice, building on the work of the FSA. Only advisers who were not paid by providers would be permitted to call themselves “independent advisers”. Payment for advice could still be contingent on a sale, as commission is today, but it would have to be negotiated between the adviser and the consumer, not the adviser and the product provider.
- Tax simplification measures, including abolition of the “qualifying policy” regime for life savings policies and an overhaul of pensions taxation. Over time, the tax system for retail savings products has become very complex and simplifying it will help empower consumers. The Review believes that future government action in this area should focus on simplification, and not on attempts to stimulate savings levels with tax incentives.
- Measures to boost consumer education in financial matters, including more financial resources, a ring-fenced budget and higher profile within the FSA.
- More stringent investment qualifications for financial advisers.
- A set of principles for retail savings products based on the Myners principles of investment, setting out what providers should disclose to consumers about their investment strategy.