MPs deliver damning indictment of long-term savings industry

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The Independent Online

The financial services industry came under attack from two different directions yesterday, as the Financial Services Authority (FSA) and the all-party Treasury Select Committee of MPs accused providers of not doing enough to treat consumers fairly, damaging their confidence.

The financial services industry came under attack from two different directions yesterday, as the Financial Services Authority (FSA) and the all-party Treasury Select Committee of MPs accused providers of not doing enough to treat consumers fairly, damaging their confidence.

The most virulent criticism came from the Treasury committee in a report, "Restoring Confidence in Long-term Saving". The chairman, John McFall, said: "This committee has uncovered a catalogue of problems that have beset the long-term savings industry in recent years. People now trust their local supermarket more than many of our largest life insurers. Complex and opaque practices and products have been allowed to persist for too long. The average consumer feels excluded because they simply do not understand what the industry has to offer them."

The committee challenged the savings industry to come up with firm proposals to help restore consumers' faith by becoming more open about the products it offered and how risky they were. It wants to see a clear, standardised summary box introduced on all savings products, setting out what the product is linked to, if the saver is guaranteed to get their money back, a standard indication of how risky the product is and what the charges are. It added that there should be a limit to the current "unacceptable" system where independent financial advisers continued to receive so-called trail commission, which can cost the consumer thousands of pounds for years after they have bought a product. Pay in the industry should be more closely linked to the returns being delivered to savers.

Mr McFall said: "The sight of top executives in recent years receiving huge pay increases while savers have seen the value of their investments collapse has left many consumers disillusioned."

The committee also called for greater transparency over how much, and for what, consumers were being charged, including a much clearer system for telling consumers how much they are paying for sales and advice and the relative cost of paying by fee or commission.

Mick McAteer, the principal policy adviser to the Consumers' Association, said: "This is a damning indictment of the financial services industry."

The FSA report, Treating Customers Fairly - Progress and Next Steps, says: "The industry has made improvements in recent years, but further progress needs to be made for consumers to be treated fairly throughout the lifetime of retail financial products." Although senior managers said they were committed to the fair treatment of their customers, there were "varying degrees of mismatch between these stated intentions and the systems and controls that firms have in place to deliver fair treatment".

Firms did not always include assessment of risk to the customer or of customers' needs in the product development process or in assessment of the target market. They did not have sufficient controls in place to mitigate the risk that the way in which sales forces and advisers are remunerated could have an influence over the sale of the product to the consumer.

Mary Francis, director general of the Association of British Insurers, said: "We will look carefully at the Treasury committee's recommendations."

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