Financial Services Consumer Panel chairman Adam Phillips (pictured) says the regulator could have done more to raise awareness of the RDR and develop simplified advice for consumers.
The Financial Services Authority (FSA) has missed a trick by not using the retail distribution review (RDR) to develop simplified advice, according to Adam Phillips, chairman of the Financial Services Consumer Panel.
Phillips said the regulator had failed to deliver policies aimed at establishing a framework for a workable simplified advice model and, alongside the Money Advice Service (MAS), could have done more to explain the RDR to consumers.
‘[We would have liked to] see good explanations to the public, which has kind of gone out by default along with helping the industry get to solutions that would deliver straightforward products or more straightforward advice at a lower cost,’ he said.
In the run-up to 2013, the FSA repeatedly ruled out lowering the RDR qualifications criteria for those giving simplified advice, and declined to give any guidance as to which products could be sold via a simplified process.
However, Phillips believes all is not lost. He argued that the rapid technological development of computer systems and greater understanding of product design meant it was time the Treasury and the regulator had another go.
‘It seems like a good time to revisit that area. The demand should be there because of the number of people who need to be saving and who don’t have the certainty over [how much] they’re going to have for retirement,’ he said.
Need for simplified products
In October 2011, the Treasury set up a steering group to look at developing simplified financial products, headed by Carol Sergeant, the former Lloyds Banking Group chief risk officer and FSA director.
The group has so far focused on savings and insurance products. Most recently it reviewed proposals for easy-access savings accounts, 30-day notice savings accounts and life cover products.
Phillips hopes the group will expand its scope to consider products that would help clients save more in the long term.
‘I would hope to see them moving to different vehicles. [I understand] simple deposit products are quite difficult to design, and simple protection products are also difficult. You get quite a lot of issues about liability, [but the products could also deliver] reasonable rates of return over a long period of time,’ he said.
‘The issues aren’t a million miles away from the problems we have with long-term risk in other areas: cars break down and some healthcare products have adverse side effects. I think there’s room for discussion about a product that is going to be suitable for most people but not everybody.’
To encourage people to save into long-term vehicles, the government, possibly through MAS, needed to educate consumers that it was not a negative thing to add some risk to their portfolio, Phillips said.
‘The MAS needs to do more in helping people approach the idea of getting advice,’ he said. ‘Shopping around builds experience and trust: it helps them learn.’
Banks’ withdrawal no great loss
While Phillips is critical of the RDR over its simple advice shortcomings, he does not bemoan some aspects of the advice gap it has created.
Lloyds announced its intention to launch a simplified advice offering in June 2012, but pulled out in September as it aligned its concerns with other mass-market banks that felt it was too risky to launch a simplified advice proposition.
Phillips said any advice models driven out of the market by the RDR were not giving suitable advice beforehand.
‘Banks thought they were running a big risk, they figured the cost of removing advice would be less [of a strain] than taking the risk [of giving unsuitable advice],’ he said.
2008-present Financial Services Consumer Panel, chairman
2005-2008 Financial Services Consumer Panel, vice chairman
2002-present Real Research, managing director
2000-2002 Nielsen AGB Media Research, chief executive
1994-2000 BMRB International, executive director
What's in your garage?
VW Passat Estate
What's on your bookshelf?
Sweet Dreams - Ian McEwan
What's on your ipod/stereo?
Let Them Talk - Hugh Laurie
What are your plans for the weekend?
A walk on the South Downs