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Simple Products

December 8, 2011

Last year the Government launched its consultation on simple financial products and a summary of responses has now been published.

Their aim is to help people take responsibility for their finances and to make better choices.

In their view the complexity of the current market stops consumers from entering the market or making the best choices.

The consultation set out three objectives: to help ensure that people understand the products they need; to help consumers make better choices and to encourage competition in the market.

What they did not recognise was the need for simple products to be “good”.  Rather surprising given the PPI experience and previous initiatives on sustainable home ownership.

Fortunately the responses to the consultation go some way to correcting this. The overriding feature of the consultation though is lack of agreement on the way forward.

It seems to me that whether anything actually results may depend on “political will” from the politicians.

Although the lead for the work is with HMT, broader societal concerns may well be driven from BIS.

Any summary of such a conflicting set of responses is bound to be partial but for me some of the key points are as follows.  First, there was no consensus on how the initiative should be taken forward.

Consumers groups prefer HMT but others go for the FSA. Right from the start it has been difficult to see how to marry the FSA’s interventionist stance to new product development with a more strategic approach from central government.

For the IP quality standard, we got round this by suggesting a quality mark which would apply to a section of the industry and its products.

There is support for a voluntary code of conduct involving a clear set of minimum standards that have to be met for products to be considered “simple”, to be regularly updated and clearly defined, for example making the products as transparent and easy to compare as possible, and by publishing claims rates and complaints figures.

Secondly, and happily, the overriding view is in opposition to price caps but there is a strong alternative view from some consumer groups.

In their view, consumers do not necessarily have pricing ‘norms’ to help them understand if they are getting a good deal and price structuring can therefore exploit consumer weaknesses. This issue will return if the initiative moves beyond the drawing board.

Third there is no consensus on the market for the products. Some argue for the mass market but others go for those who are currently excluded such as low and middle income consumers; those who are unsaved/protected; those who do not have access to financial advice; young people, and those with little financial knowledge. A classic case of – if this is the answer what is the question?

Fourth, supposing simple products are developed how will people find out about them? An awareness raising or publicity campaign is suggested to help embed the brand, but that would require commitment of participants for funding.

We have been here before.  Other ways of raising awareness include education in schools or through the Money Advice Service.

IFAs get some recognition as there is strong support for linking sales channel with products and vice versa and that not having a face-to-face distribution channel may restrict access to some people.

So what happens next? HMT have asked Carol Sergeant (former Chief Risk Officer, Lloyds Banking Group) to chair and set up a steering group including representatives from Government, industry, and trade and consumer bodies.

The group will report back to HMT by July 2012 setting out how to bring simple products to market, including how simple products are structured and marketed to ensure that consumers get the best deal.  Simple products turn out to be not that simple in practice.

Written by Richard Walsh, Director and Fellow, SAMI Consulting

Published by Cover Magazine, 7th November 2011, click here to view full article

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