Advisers issue warning on dangers of simple products
The Treasury’s proposals for simple products risk leaving people on low incomes with inadequate insurance or investments, Roy McLoughlin and Robert Reid have warned.
The warning from the IFAs come as Carol Sergeant’s long-awaited interim report into simple products recommended creating an easy-access savings account, a 30-day notice account and a simple term life insurance product that would be non-advised.
Mr McLoughlin, IFA for London-based Master Adviser, said there was a danger that people could purchase a simple product and then think they do not need anything else.
He said: “The inference is that simple products do not need advice. People are being left to work things out for themselves. If you make something too simplistic and people misunderstand what it means, the danger is it they will think that is enough, and the fact there is a government stamp will make them think they may not need anything else.”
The 80-page report, commissioned by the Treasury, proposed that simple products are aimed at households with a net income of £15,000 to £50,000. It said simple financial products should be “easy to understand, easy to compare, easy to buy, easy to maintain and monitor as well as providing consumers with a fair deal”.
There would be a simple regular savings product, fixed-term product and life cover that paid out a lump-sum in the event of death. It would not include indexation, guaranteed insurability options, waiver of premium, accidental death benefit, decreasing cover options, joint life, alterations, conversion option and terminal illness.
The report also proposed an income replacement product, but said it wanted more views on how this would work.
It said the target market would be 15.5m households, or 29.4m adults, for the savings products, and 9.7m households, or 19.8m adults, for life cover.
Ms Sergeant proposed creating a simple products kitemark that would be approved by an accredited body, which it suggested could be the Money Advice Service.
The report said research would be undertaken into the branding and product design once the consultation had finished.
The closing date for responses is 12 October and a final report is due in February 2013.
Mr Reid, managing director of London-based Syndaxi Financial Planning, said the income threshold was very large and could impede on the advisory market.
He said there were questions about who would be responsible if someone buys a kite-marked product that turned out to be unsuitable.
Mr Reid added: “It is a daft idea to believe that people with small income levels have simple lives. The reality is that people who have less income have a far greater sensitivity to loss. There is no guarantee that someone with low income has a less complex set of circumstances.
“A lot of the thinking on simple products revolves around people getting products without advice. In some cases the very product someone needs is advice.”