Selling simplified investment products – FSA feedback

The industry gave a cautious welcome to the Financial Services Authority's discussion paper on proposed rules for face-to-face and distance sales of so-called 'simplified investment products.'

The paper followed Government review of July 2002, which recommended the development of a suite of simple and transparent regulated products, in respect of which the present approach to regulating the advice process – with qualified financial advisers – could be removed altogether.

Three options were presented in the paper:

1. Self-help: Consumers would receive clear warnings about the basis of the sales process and relevant risks, which could be understood without further reference. The risk would be on the customer, and customers would be required to confirm that they understood the information given.
2. Guided self-help: A series of filter questions, set by the FSA, would be used by the salesperson to screen out consumers who should not be thinking about buying the product concerned. Firms that had applied the simplified sales regime could not be held liable for poor advice, although consumers would still have protection against
   misrepresentation or fraud.
3. Focussed advice: An adviser would make a limited assessment of individual suitability, to a scope set in FSA guidance. An adviser could give advice on the simplified suite of products only without having to train to the level required for the full range of regulated advice.

The FSA says it is now favouring the second option, guided self-help.

Consumer groups, such as the Financial Services Consumer Panel, expressed some concern that the reduction in access to qualified advice would increase the risk of mis-selling of products.

Industry respondents, while broadly happy with the idea of using filtered questions to guide consumers towards a product, were concerned that they may be hit later by a retrospective mis-selling review, and that the suite of products would not generate a profit.

But the FSA is confident that the filtered questions approach is the right one to take forward.

Michael Folger, Director, Conduct of Business Standards at the FSA, explained:

"We still have to recognise that for some consumers even simplified investment products would be a poor choice. So, before taking any decisions, the next step is consumer testing of a filtered questions approach to the sales process. That will help us assess how effectively it can help consumers make sensible choices."

The feedback statement is available as a 25-page PDF from:
www.fsa.gov.uk/pubs/discussion/fs19.pdf