The Financial Conduct Authority has issued guidelines on the treatment of closed-book consumers, calling for more transparency from providers.
The regulator's guidance stated closed-book customers should receive clear and timely communications about policy features at regular intervals and at key points in the product life cycle that allow them to make informed decisions.
This should include information about the performance of the product, its value, and the impact of fees and charges.
Around key policy events, providers should also highlight the availability of advice, provide sufficient notice for when a decision is needed and provide alternative options to incurring an exit charge.
Megan Butler, the FCA’s executive director for supervision – investment, wholesale and specialists division, said: “Our previous work in this area uncovered poor practices at some firms across the sector.
“We are not introducing new rules, but this guidance will help firms know what we expect of them to ensure their customers are treated fairly going forwards.”
The FCA said products should be reviewed at least every five years, but said there could be instances where an ad-hoc review is needed, such as the introduction of pension freedoms.
In March the FCA published a thematic review into the treatment of long-standing customers in the life insurance sector.
It found a lack of transparency around the fees closed-book life companies charge customers.
The FCA also warned providers to give equal attention to closed and actively marketed products.
The regulator stated: “We expect firms to start from the presumption that each type of fund requires equal oversight and to be able to demonstrate that any difference in approach between funds is fully justifiable by reference to relevant regulatory requirements and guidance, possible conduct issues arising, and expectations which have been set with customers and communicated to them.”
Providers should also make sure closed-book customers are able to move from products that are no longer meeting their needs in a fair and reasonable manner.
The watchdog stated paid-up and exit costs should not be excessive or drive poor consumer outcomes.
Christopher Foster, a financial adviser with Lancashire-based Pennines IFA, said: "One of the big problems is the consolidators, who have almost got no other customers than closed-book ones.
"Because they are old contracts you could have five or six different charges, plus penalties, plus different sorts of units. With the best will in the world it is hard to communicate that. What they need to do is modernise the contracts."
damian.fantato@ft.com
