In the letter AJ Bell says the current disclosure regime for pension and investment products has become so complex that it is confusing for consumers and is not helping them make informed decisions. Ultimately it could result in consumers ending up with products that they don’t fully understand or, worse, are not the best product for them.
AJ Bell points out that a retail investor will receive a number of mandatory documents at the point of sale, including a suitability report, key features illustration, key investor information document and sometimes a transfer value analysis. There are potential problems with all of these documents but when combined they amount to a bewildering array of information.
The sheer volume and complexity of the documentation means many customers will learn nothing.
Most of these documents have been the subject of regulatory review or consultation over the years but only in isolation. In reality, all of the reviews are trying to tackle the same problem – providing clear and easy-to-understand information to consumers that enables them to make informed decisions.
Now is the time for a root and branch review of point of sale disclosure as a whole, with the objective of radically shortening and simplifying the information consumers receive when they are purchasing a financial product.
Andy Bell, chief executive at AJ Bell, says in the letter:
“The case for carrying out a wide-ranging review of all the communications sent to customers at the point of sale is clear. Only by doing this can the regulator, in partnership with the industry and advisers, begin to scope out those bits of information that help consumers make a decision and those bits that do not.
“The overarching aim of this project should be simplification. Ideally we would like to see a reset of the regulatory approach to disclosure so that, rather than adding layers to a broken model, the FCA builds a new framework that savers can really engage with.
“In doing this, the FCA should be bold. Can we, for example, get the majority of information a retail investor needs onto a single page document? Clearly this would be a challenge and people should have access to additional information should they want it, but for the majority of people we believe this radically simplified format would suffice.
“We appreciate the regulator’s role must strike a balance between informing consumers and protecting them. But the current disclosure rules were created in a different era and without serious consideration of how they interact with each other. The pension freedoms have redrawn the retirement landscape, and Brexit has the potential to give the UK greater control over setting its own rules in some areas.
“This feels like an ideal catalyst to look at all the information retail investors receive at the point of sale so we can build a system that is fit for purpose today and will help deliver better consumer outcomes.”
A copy of the full letter can be downloaded here.