by Mark Johnston
Financial services are an important part of everyday life. Financial products help every household to manage their day to day spending, enabling them to save for the future and also insure against loss.
Despite this, many people still struggle to understand exactly what financial products can do for them. Financial services on a whole are confusing and this is not surprising when there are, for example 2,000 savings products on the market currently.
The government has set out a clear strategy to restore confidence in the financial system and to also encourage people to take responsibility for their finances, thus making them better equipped to make the market work for them.
The Financial Service Authority (FSA) has found that many consumers in the UK lack the confidence and capability to make effective decisions about their own money. In addition people who do have an understanding of financial products can not however keep pace with the rapidly changing market.
Adam Philips, chair of the Financial Services Consumer Panel (FSCP), says “given the complexity of financial services, knowledge is power. This power currently resides in the hands of firms rather than consumers. It is time to redress the balance, not load further responsibility on to consumers”.
The government believes that there is a compelling need for the financial service industry to offer a range of ‘simple products’, both to help consumers understand their choices and also to provide a benchmark against which all consumers can compare the many thousands of products on the market.
The European court of justice has for sometime described the ‘average consumer’ as someone who is reasonably well informed and reasonably observant. Therefore experts believe that consumers should make a reasonable effort to understand what is on offer and then properly evaluate all the information they are provided with.
The Financial Service authority (FSA) has introduced a national strategy for financial capability; however they have stated that ‘the full impact of the strategy will only be seen over the next generation and beyond’.
Financial capability is not just about decision making it is also about being able to manage money, keep track of finances, plan ahead and keep up to date with financial matters.
The Financial Services Consumer Panel (FSCP) however has called on the government to resist handing consumers greater responsibilities for their decisions. The panel believe that it is ‘unreasonable’ to expect consumers to fully understand complex financial products and services.
There is no argument that consumers need to act sensibly when making decisions about financial services but it is often ‘impossible’ for consumers to make reasoned decisions given the complexity of the market.
Some experts feel that instead of giving consumers more responsibility, the new Financial Conduct Authority (FCA) should be able to make rules to impose fiduciary responsibilities on the industry which would ensure consumers could be confident that all firms would act responsibly and trea
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