Call for radical overhaul of key features documents

Call for radical overhaul of key features documents

The regime for comparing pension and investment product charges needs a root and branch overhaul, according to platform provider AJ Bell.

The firm has stated the current methodology is not fit for purpose.

For exmaple, a majority of 594 advisers surveyed - 61 per cent - said the key features illustrations do not achieve their objective of explaining to clients the charges they will pay and the benefits they will receive from the product they are investing in.

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AJ Bell stated the findings suggest that in their current format the illustrations need to either be abolished as part of the Financial Advice Market Review or need a "serious rethink".

Key features illustrations are designed to enable people to compare charges between different products, so they can decide which one to purchase.

After years of changing regulation that objective has been lost, according to AJ Bell, and they are now so complicated they are very difficult for clients to understand. 

The FCA published a discussion paper in June 2015 which acknowledged consumers' ability to make informed decisions is often impeded by regulatory disclosure material, which is not accessible or understandable to consumer.

Another facet was information overload and excessive use of financial and legal language which was acting as a barrier to consumer engagement.

The FAMR in 2016 then focused on suitability reports, noting there was scope to shorten the time spent on and improve the quality of them, which would make them more accessible to consumers.

AJ Bell stated this was a "welcome step" but added it did not go far enough.

Billy Mackay, marketing director at AJ Bell, said: “As an indicator of the impact of charges, KFIs are the worst possible example of information over load, often running to 10 pages or more of impenetrable numbers.

"In terms of demonstrating what you might get back from an investment - the only thing you can guarantee in a point of sale key features illustration is that the customer will not receive what the illustration says."

He said AJ Bell would like to see the scope of the FAMR extended to ensure that KFIs are reviewed alongside suitability reports.  

"Any replacement must involve a much simpler set of product features and costs outlined in a manner that the ordinary person in the street will have a fighting chance of understanding. 

“FAMR should be an opportunity to improve access to financial advice in the UK and deliver better outcome to consumers.  Unfortunately, as it currently stands the FAMR is a generic set of observations with very few clear actions that are going to help achieve those objectives."

Bob Wilson, director and independent financial adviser at GreenSky Wealth said: "The illustration documents often don’t compare like-for-like between products, they include a lot of figures and impenetrable jargon which only confuses the consumer.

"They are often inflation adjusted which with some growth rates shows the projected value in 10-20 years’ time to be less than the pot they currently have. Understanding the effect of inflation is important but not to the detriment of clarity.