UK's Financial Services Authority Proposes Streamlined Information For Financial Consumers

The Financial Services Authority wants consumers to find it easier to identify, understand and compare key information before buying investment products. Under proposals put forward today , a concise, jargon-free document called Key Facts would replace existing information that consumers receive before buying products such as unit trusts and pensions.

The main proposals, on which the FSA is consulting, are:

• the document will have a bold, new Key Facts logo and a consistent look and feel. This will make it easier for potential customers to recognise important information, no matter what type of investment product they are considering;
• the Key Facts cover will also feature the FSA logo with a message highlighting to consumers that the document contains information that the regulator requires firms to provide to them. It will also make it clear that the information is intended to help consumers decide for themselves whether the product is right for them. It is not a recommendation from the FSA;
• inside Key Facts, there will be a 'Quick Guide' highlighting the most important factors that consumers should think about before buying. And 'Frequently Asked Questions' will give the main terms and conditions and other information in plain, jargon-free language. There will also be clear signposting showing consumers where else to look for further detail; and
• the way costs and charges are presented will be simplified. Consumers will get a single example (in many cases, based on their own personal details) that shows how charges can affect the growth of the product. The example will also explain how they can use the figures to compare costs and shop around.

John Tiner, FSA Managing Director, said: "Our research shows that consumers often don't bother to read the current information they receive and that when they do, they find it too long and full of jargon. Giving consumers the "Key Facts" in a punchy, concise format will, we hope, make it more likely that consumers will be able to distinguish Key Facts from the rest of a firm's marketing material and that they will read and understand the information presented to them.

"Better informed consumers are less likely to make the wrong choice and more likely to become confident investors. We believe these benefits will offset the costs of making the changes. We do, of course, recognise that this is a challenging time for firms but, by spreading the costs over three years, we aim to help firms manage and absorb them."

Costs
The FSA estimates that the proposals will cost the industry, as a whole, around £110 million. Making changes to the way they present information about their charges is likely to be the most expensive part of these proposals for life firms. The FSA estimates these costs will represent around two thirds of the overall cost of £100 million to the life industry. Even though this is a small proportion of new annual premium income of £9 billion, it is proposing to ease the burden on the industry by phasing in Key Facts over a period of three years: ISAs, unit trusts and all pension products will have to comply within a year; savings and mortgage endowments within two years; and all other products within three years. Consultation Paper 170 Informing consumers: product information at the point of sale is published today along with final rules. Feedback is requested by 2 May 2003. These proposals form part of a package of measures designed to reform the way in which financial products are bought and sold. Recently, the FSA issued its draft rules on de-polarisation, which will greatly widen product choice for the majority of consumers. Shortly, it will be issuing further consultation on the 'Menu' approach to paying for financial advice, which will ensure that consumers better understand the real cost of independent advice and can make informed choices about how to pay for it.

Background

1. To meet the requirements of European directive UCITS III, initial proposals for including past performance information in Key Facts for unit trusts and OEICS are put forward in CP170 . However, the FSA does not consider past performance to be a useful indicator of future performance for consumers. 1. The current product disclosure regime was introduced in 1995 (1998 for collective investment schemes). Its purpose is to give consumers the information they need in order to make an informed decision and enable them to compare products. The vehicle has been the Key Features Document which firms must give consumers before they buy a 'packaged product'. In the discussion paper, Informing consumers: a review of product information at the point of sale published in November 2000, the FSA signalled its intention to the review the regime. www.fsa.gov.uk/pubs/press/2000/142.html
2. A word version of a mocked up Key Facts document for a pension is available on request from the FSA press office.
3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000 : maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime.
4. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.