Consumer Panel warns government over stakeholder products

The Financial Services Consumer Panel (FSCP) has today warned the government that its proposed product specifications for Sandler "stakeholder" products fail to meet the needs of low to middle income consumers.

According to the FSCP, there will be a "real risk of misselling" if the sales and advice regulations for these products are relaxed.

The government's proposed new stakeholder products (a unitised product and a with-profits product) include stock market investments that involve short-term risks to capital. And yet, the Consumer Panel believes, many of the target consumers have "little appetite" for products where there are risks to capital.

"They cannot afford to lose any of the capital sum invested, and so even cautious fund management may be inappropriate: the Government asserts that over the last five years only two cautious managed funds have lost money, but over a shorter timeframe of the last year, all such funds are likely to have lost money," the FSCP said.

The Panel has called for a wider range of products to be included in the stakeholder range - particularly some which do not contain exposure to the stock market. The Panel suggests a cash savings vehicle, and also a scheme similar to the Child Trust Fund for adults, with similar government incentives to save such as matched contributions or tax incentives.

The Panel believes that person-to-person advice is crucial to encouraging saving, and encouraging appropriate saving. A simplified investment product, even with minimum standards, may still be too risky for many consumers.

Colin Brown, Chairman of the Panel said: "There are only two new products here. And neither of these would protect investors from losing some of their money. So neither is safe enough to sell without the normal suitability rules obliging advisers to 'know your customer'.

"However, it should be possible to develop more attractive products - especially with a capital guarantee - which consumers would rightly see as safe. And the best way of simplifying the sales rules would be to establish an advice service that offered portable fact-finds or 'prescriptions'."

(GMcG)