Michael Folger, Director at the FSA, said: "Today's report demonstrates that 80% of consumers got the same, or similar, advice from sales advisers recommending simplified products as they would have received from a fully qualified adviser.
"It is clear from our analysis that we now need to conduct a second round of research. Then we will be able to conclude whether the filtered questions approach would achieve an acceptable balance between our objective to protect consumers and the principle that we must act in a proportionate way."
Results
- 80% of the outcomes from the filter process were either consistent with a recommendation made by a qualified adviser or otherwise 'reasonable'.
- 98% of the consumers involved thought the filter questions were easy to understand and, of these, 81% who had received advice before thought this process was the same as or better than the advice process they'd gone through before.
- 89% thought the interview did not take too long (average interview time was 22 minutes).
- Over 80% did not feel that the salesperson was hustling them and trying to sell them something regardless of their needs.
- 75% of consumers thought that warnings suggesting that they might need to take action in certain areas, such as having emergency money and meeting mortgage repayments, had highlighted an issue that they needed to address (83% for those with a potential debt problem).
502 interviews were conducted using salespeople from firms that the FSA regulates. 378 interviews took place in the firms' premises (building society/bank branches), 102 used firms' telesales operations and around 22 involved visiting a customer's home.
The firms used staff similar to those they would deploy for a simplified selling process if one were introduced. Generally the staff had no formal qualification although if a simplified selling regime was introduced the FSA would expect staff to be trained as competent in the tasks they perform.
Remote training was carried out and a sales script to use with consumers was developed explaining:
- service offered;
- what stakeholder products are;
- what to do if you have a complaint; and
- that you could opt out of the interview at any time.
- whether the consumer has any emergency money;
- whether the consumer has any protection policies, e.g. if seriously ill or were to die;
- whether the consumer was able to meet their outgoings, e.g. mortgage, rent, credit card or other debt repayment;
- information about consumer's saving horizon, e.g. short-term or retirement
- consumer's attitude to risk; and
- specific information on pensions, e.g. whether could become member of occupational scheme.
The independent researchers also completed a fact find with the consumers and de-briefed the consumers on aspects of the interview.
After this process, the fact finds were sent to a special panel of qualified financial advisers who made a recommendation based on the information before them. Subsequently, both recommendations were compared to see whether they "matched". Where the outcome didn't match it was assessed to see whether or not the filter question outcome was still reasonable. The FSA is not expecting to get an optimal outcome but the intention would be to exert effective control of the risk of consumers being recommended to buy something that they would be better off without.
Consumers were made up of four main quota groups looking at age, sex, household income, debt problems, lack or not of protection cover and those who were either considering the purchase of a financial product in the future and those who had no interest at all in making a purchase.
Any regime will, of course, need to be consistent with the FSA's statutory objectives and the principles of good regulation. This includes the requirement under the Financial Services & Markets Act 2000 to secure appropriate consumer protection, with regard to four principles set out in the Act:
- the differing degrees of risk involved in different kinds of investment;
- the differing degrees of experience and expertise that different consumers may have;
- the needs consumers may have for advice and accurate information; and
- the general principle that consumers should take responsibility for their decisions.
- The research published today explores option b, detailed below, of three possible options highlighted in FSA Discussion Paper 19, Options for regulating the sale of "simplified investment products", published in January 2003:
- Self-help. Consumers would receive clear warnings about the basis of the sales process and relevant risks, which could be understood without further reference. Caveat emptor would apply and customers would be required to confirm that they understood the information given.
- 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.
- 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 research was carried out in line with the decision announced in the FSA's Feedback Statement on DP19 in July 2003. It was conducted for the FSA by ORC International. The research brief is set out in an annex to the ORC report which can be located here.
- The FSA expects to commission the next round of research shortly and have it completed by the end of February.
- 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.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
