FSA urged to ban products to de-risk building society advice
Building societies should be allowed to continue to sell retail investment products from next year in order to bridge an expected ‘advice gap’, though the risks associated with such activities should be reduced by the banning of certain products, according to the Building Societies Association.
In a white paper produced of the bank of the Independent Commission on Banking proposals the government seeks views on the “desirability of permitting ring-fenced banks to sell retail investment products”.
In its consultation on the future of building societies, published in June, the government stated its intention to apply most of the proposals from the ICB, including the effective ‘ring-fence’, to the building societies sector through changes to the Building Societies Act.
In its response to the consultation, the BSA argues that building societies must be allowed to continue to sell retail investment products as the RDR is “widely expected” to reduce the availability of advice for consumers.
Building societies, the association continues, with their extensive branch networks are “well-placed” to continue to advise upon and sell such products, or to introduce customers to third party providers of such advice.
The BSA admits that selling retail investment products can pose prudential risk to societies. However, this risk can generally be easily managed and could be mitigated further by banning the sale of certain products deemed to be “toxic”, such as the traded life assurance policy funds, it adds.
The BSA states that the FSA already has some powers in this regard and these are to be enhanced with the inception of the Financial Conduct Authority in 2013.
The BSA’s response said: “We consider that it would be disproportionate, as well as damaging to consumers and to building societies, if societies were to be precluded from offering retail investment products per se.”
It also argued that as retail investment products, such as collective investment products and life-assurance based investments, are typically components of longer-term savings portfolios, the sale of these is a “good fit” with building societies’ core savings and lending business.
Furthermore the trade body emphasised that income from the sale of these products has been a “key contributor” to building society profitability for several decades and is likely to remain so in the future, “notwithstanding the likely impact of the implementation of the Retail Distribution Review in January 2013”.