Prudential warned yesterday that delays in the Government's overhaul of the savings and investment industry was harming consumer confidence, as the company reported a 19 per cent slump in sales in the UK over the year.
But two leading figures involved in the reshaping of the savings industry blamed the insurers and fund managers themselves, with their terrible record of mis-selling, inefficiencies and corrupt sales practices. Ron Sandler, who was instructed by the Treasury to find ways to boost savings, and Paul Myners, the former Gartmore chairman who led a review of the pension fund industry, both criticised the failings of the current regime. They said there was no choice but to pursue regulatory changes or widespread mis-selling would continue.
Jonathan Bloomer, the chief executive of Prudential, said it was the continuing government and regulatory reviews in the sector that were creating uncertainty for consumers as well insurers.
"We have the possibility of price caps, simplified sales processes and simplified low-cost savings products to consider. We had hoped these would have been sorted out by now and they will impact consumer confidence," Mr Bloomer said. He said that customers, while reeling from stock market losses, are also putting off savings decisions until the Government finalises its plans.
But giving evidence to the Treasury Select Committee, Mr Sandler said: "Customers are confused and unwilling to engage with the industry. The customer is not able to discern whether they are getting value for money. Advisers have a conflict of interest because they are paid commission by the insurance companies. This means that customers think they are getting advice free and there is no drive, no challenge, to advisers or insurers."
Pension mis-selling, where people were wrongly advised to ditch their valuable company schemes in favour of more risky personal pensions, endowment mortgages, split capital investment trusts, the near failure of Equitable Life and now precipice bonds have been major contributors to the lack of confidence in insurers and advisers. "People trust their supermarkets more than they trust insurers," said Mr Sandler. He added that upfront commission to advisers has to be eradicted or the industry will struggle to regain trust and give customers a better deal.
The Government and the Financial Services Authority have been overhauling the savings industry, from revolutionising the way financial products are sold and how financial advice is paid for, to getting rid of the red tape that constricts pensions. They are also, as recommended by Mr Sandler, developing simpler savings products for the mass market.
But the changes have yet to come in and have been hit by delays. The Sandler products will be priced capped, but the Treasury will not decide the price cap until the FSA works out how it can simplify the sales process that accompanies them. It was supposed to report to the Treasury last year, but it is now likely to be the Spring before its research is finished.
The range of products, also called the "Sandler suite", would be designed to make them safe for any investor. This would eliminate - or at least substantially reduce - the arduous and lengthy rules that at present govern sales. "Supermarkets and post offices could sell them," Mr Sandler said.
The FSA, however, does not want to let go of the tight prescriptions around sales, given the history of mis-selling. The sales process is strictly regulated, covering what information must be gathered from a customer to ensure they end up with a product that is financially suitable for them. "We are talking here about lighter touch regulation - a simplified regime, because we are not going to compromise in any way on consumer protection," said a spokeswoman for the FSA.
How the FSA strikes this balance will affect the price cap, as regulation adds cost. Mr Bloomer is reluctant to have price caps enforced upon him. He is backed by Richard Harvey, the chief executive of Aviva, who has said it will reduce its presence in the UK if products become unprofitable to sell. "Unless we get a return on capital, we cannot offer these products," Mr Bloomer said.
Fidelity, the biggest fund manager in the UK, also called on the Government to scrap the idea of further price caps. "The FSA's delay in publishing its report on low-cost savings products points to a loss of confidence that fee capping is the way to attract new savers or that products can be simplified by regulation so they can be sold without advice," Richard Wastcoat, the managing director of Fidelity, said. "The Government should put its faith in the tried and tested solution of a competitive range of good value investment funds."
Mr Sandler and Mr Myners argued fund managers and insurers had let customers down, operating to their "own interests" rather than those of the customer. Mr Sandler said: "The economic relationship needs to shift from being between the product provider and the IFA to be between the IFA and the consumer. Insurers act to the benefit of their own interests, targeting affluent people and keeping costs high."
Mr Myners said: "Almost no-one has approached things from the perspective of the customer. The voice of the consumer is being lost."
As well as launching new, low-cost savings products, the Government and FSA are also tackling the channels through which products are sold. This is another factor that is throwing the insurance industry and customers into confusion. The current system is known as "polarisation".
Anyone selling investment-related products - a bank, building society or a sole trader - are either tied agents, who are only allowed to advise upon and sell the products of one insurer, or independent financial advisers (IFAs) who search the whole market.
The FSA has deemed this to be uncompetitive and it fails to give customers choice. It has been working on opening up the market for a wider range of consumers, and the result is forthcoming "de-polarisation". There will still be IFAs, but tied agents can set up multiple ties with a number of providers. The rules have not been finalised and it will be autumn at least before they come in. "We are keen to find banks to tie-up with, but people are hesitating until they know what the rules will be," Mr Bloomer said, who has been envious of Legal & General's tie-up with Barclays.
The Government and the public do not seem to trust the insurers and fund managers with their cash. The industry looks set for a long battle with sales and product regulation and price caps. It could be some time before consumer confidence is fully restored.
POINTING THE FINGER OF BLAME
'We have the prospect of price caps and low-cost savings products. We hoped these would have been sorted out by now'
Jonathan Bloomer, Prudential chief executive
'Customers are confused and unwilling to engage with the industry. People trust supermarkets more than insurers'
Ron Sandler, head of savings reviewReuse content