Do Financial Products Need to be Simpler?

by Mark Johnston

People need to be able to choose the right financial service product for their needs, however a vast array of choice is not always a good thing; complexity can cause confusion and inaction.

The government want to see a thriving and trusted financial services marketplace, where consumers can buy the products they need with confidence.

Potential customers have been put off in the past by very complex products, often described in not easy to understand jargon and containing a range of terms and conditions that is suspected to not always be consumer friendly.

The financial services and market act (FSMA) establishes the protection of consumers as one of four statutory objectives, along with promoting public awareness of the financial system.

The British Bankers Association (BBA) is the leading UK banking and financial services trade association and they believe that “a move to a more streamlined delivery process at the lower end of the market could form part of a more clearly segmented sales/advice landscape, where firm’s services are clearly defined for consumers”.

Some financial experts also feel that the consumer too has a responsibility in a new retail distribution landscape, one in which the financial retail market is more transparent, where services are more clearly defined and where product information is more user friendly.

Over the last 10 to 12 years there have been a number of attempts to simplify what many see as an over complicated financial services market.

The previous government introduced 2 initiatives to help consumers make sense of the market: CAT (charges, access, terms) and stakeholder products. However these were unsuccessful partly because the initiatives did not catch consumers attention and partly because firms had no incentive to market or sell these products to the consumer.

Although research has shown that consumers do like the broad concept of simple products and therefore there does seem to be a place for simple products in the market.

Mark Hoban MP, financial secretary to the treasury, has not been put off by previous difficulties and in 2010 he launched a consultation document reviving the idea of what are now being called ‘simple products’.

Many experts are also keen to see a new range of ‘simple products’ introduced for the mass market consumer, which will it hopes support consumers in their decision making and also aid competition.

Simple products should be designed to be as straightforward as possible, to aid consumer understanding of the different features of each product. They should also help consumers compare simple products from different providers.

Basically these products should ‘do what they say on the tin’ in order for consumers to accurately compare products across a set of standard features to simplify decision making.

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