Future impact

On both Stakeholder and depolarisation issues there have been consultation and discussion papers from the Financial Services Authority (FSA) and a consultation document from the Treasury and the Department for Work and Pensions (DWP). These hit desks around the same time as the Pensions Green Paper from the DWP and proposed tax reforms from the Inland Revenue.

Removing barriers

Few would disagree with the fundamental objectives of current consultation on regulatory change: to remove the artificial and ineffective barriers in the distribution of retail financial services while creating access to easily understood, good value products for the mass market. There is a danger, however, of creating a regime that further alienates consumers through confusion.

There needs to be more coherence between the regulation of products and the regulation of advice. While Sandler hopes for a product suite that is so consumer-friendly that the mass market flocks to buy it, the reality is there is little that can be done to divorce the product from the advice and still retain a market.

A reading of the current round of consultation papers suggests that the following situations could, in theory, emerge:

• Consumers are able to buy Stakeholder-style products from someone with a minimum of training and no qualifications in financial services.

• A Stakeholder suite of savings products that carries less regulation than simple term and other protection products, particularly if some protection products are deemed 'higher risk', as proposed in CP160.

• Stakeholder long-term savings products are compliantly bought or sold when there is a greater immediate need for protection, debt repayment or 'rainy day' savings.

• Advisers providing advice on Stakeholder smoothed pension funds with links to a separate mortality company, but not on simple mortgages and term assurance.

• Advisers authorised to sell some Stakeholder products, but not knowing about the full range of Stakeholder products from even one provider.

For the vast majority of UK consumers who want to protect and save, can afford to do so but do not, we need to create a simple proposition that provides access to a range of products capable of meeting their most basic financial needs.

Consumers who give up an evening to talk to someone about their needs only to find that the person sitting in their home, drinking their tea, is only interested in and authorised to sell one solution to meet one need is going to be turned off ' particularly if the solution meets a need that the customer had not previously been aware of. It is like calling in a builder to look at a leaky roof to be told that he only does re-pointing and that is what, in his opinion, you should spend your money on.

Without joined-up thinking we are in danger of leaving savings and protection gaps unfilled. Figures calculated by Swiss Re show that UK consumers are considerably under-insured against the consequences of long-term ill health. The total annual shortfall in income protection cover amounts to some £130bn. If someone needs to plan for an income when they are old then they also need to make similar plans when they are ill and, in most cases, for their family after they die.

Financial knowledge is best accumulated by starting with the basics and adding complexity. If you can teach someone to talk to consumers about 'smoothed balanced funds' then you can teach them to talk about a simple concept that pays out a fixed sum of money, if you die within a set number of years and pays nothing if you do not.

It is now generally accepted by industry opinion formers and decision makers that this does not mean that you need lots of complicated product regulation and price caps around term assurance. It means that those who create access to financial products and services for the mass market need to have access to a broad range of basic products and that it should not be difficult to achieve this.

Making it clear

The FSA's consultation paper CP166 ' Reforming Polarisation: Removing the barriers to choice ' suggests that financial services intermediaries should be clear about the range of products they sell and who provides them. DP19 ' Options for regulating the sale of simplified investment products ' discusses who can sell the Stakeholder suite and in what circumstances. And the Treasury/DWP paper addresses what should be in the Sandler suite. Before examining a joined-up approach to this consultation let us first look at protection and the Stakeholder suite.

The Stakeholder suite of products is supposed to meet the basic long-term financial planning needs of most people.

Proposals have been made as to the rules that will make these products a 'safe haven'. If the Stakeholder concept is just about charge capping then there is no place for protection. However, the exclusion of protection products from the easy access, safe haven of financial services is surely ludicrous and, more worryingly, a threat to the industry's ability to close the protection gap. Yes, full advice helps clients who should write term assurance in the pension fund or with the appropriate trust wordings do so. But the provision of cover in a simple form is better than nothing.

Gaining knowledge

In future, those who create access to the Stakeholder suite and even more basic products may not be full-time financial services professionals. They may work part-time for a distributor firm providing access face-to-face, through call centres, over the internet or in the workplace. Yet they must demonstrate an appropriate level of competency. Authorising an army of financially illiterate sellers to hard-sell safe haven products would surely result in the industry sailing into stormy, yet sadly familiar, waters.

Therefore, here are proposals for a common-sense solution to meeting the needs of the market cost effectively:

n Any person who wants to be compensated for persuading or advising the public to buy financial products of any description should be at least subject to a training and competence (T&C) scheme. This should cover as a minimum the 'ultra safe' products of repayment mortgages, personal loans, personal lines insurance and life and critical illness protection products sold by their firm.

n As proposed, the Stakeholder suite is a set of safe haven regulated savings products requiring little in the way of sales regulation and recognises that there are basic needs that cannot be met from this product suite.

n Those authorised to sell the Stakeholder suite are subject to a basic minimum of a T&C scheme that includes their firm's Stakeholder products, any products brought in as adopted packaged products (gap-fillers) and the 'ultra safe' products mentioned. This would ensure that the Stakeholder 'access creator' has, at their and their customers' disposal, a full range of basic products to meet most needs. In addition those so authorised should have passed a public examination in the Stakeholder suite, as a minimum the equivalent of FPC1. A qualification requirement adds cost but FPC1 is hardly onerous and it does provide a benchmark of minimum knowledge.

n Those who wish to advise on a full range of regulated products and services which excludes Stakeholder products should be allowed to do so, subject to the current FPC and T&C requirements and disclosing in their terms of business letters that they do not offer Stakeholder products.

So if we ended up with a situation whereby Stakeholder products are a suite of 'safe haven' savings products for the mass market that recognise the key but separate role of protection insurance, then the Stakeholder suite could be simplified yet further by removing the life insurance elements and allowing it to be sold alongside protection with a proposition of 'buy term, invest the rest'.

Such a regime would not only help to ensure that the savings and protection gaps are addressed through the creation of wider access to financial services, but also that we maintain a healthy full advice sector for the needs of those who require it. It may well be the case that distributors, large and small, can structure their organisations to offer a range of the services described, providing appropriate solutions to their clients' needs and perhaps even new career paths for their staff.

Paul Hately is strategic development actuary at Swiss Re Life and Health, UK