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MSE News: FSA could ban risky products
Former_MSE_Guy
Former MSE 1.7K Posts
This is the discussion thread for the following MSE News Story:
"Some products may be outlawed and price caps imposed as part of a radical rethink of consumer protection ..."
"Some products may be outlawed and price caps imposed as part of a radical rethink of consumer protection ..."
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I think I would have 2 categories. e.g.
The FSA Rating for this product is:
Charges: C
Risk Rating: B
Or None, Low, Medium, High, Extreme etc if you prefer.
Yet actually i suspect underneath this much is about complexity - so if we were to follow your note above I'd want a 'complexity' rating too. which indicates whether there are things to watch for
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
............now, although I typed the above with tongue firmly in cheek, is that not the essence of what the FSA thinks is the root of the problem?
Are they actually saying indirectly that some people only deserve basic low risk savings accounts because they are too thick to understand anything else?
The scale I use is 1-10 with cash being 1 and 10 being the highest risk unit trust fund currently available (so keeping with retail funds). I also have a risk level above that called specialist. Rarely gets used but that is where you find your VCTs and EIS etc. Products not designed to be used by your typical retail client whereas 1-10 are.
The rating scale is firm specific. There is no global one-size-fits-all risk scale. You have to evidence your risk profiling to the FSA who give no support whatsoever on risk levels. The only times you tend to know if you were right or wrong on your analysis is when a firm gets fined or you read complaints from the FOS.
A risk scale of just 3 (low, medium, high) would be considered woefully inadequate nowadays. Although it was very common in the 80s and early 90s. Also, the methods used back then were minimal compared to the methods now. However, even today, there is often a lack of consensus on risk assessment. Even the FSA cant decide at times. Sometimes they focus on short term volatility, sometimes long term. e.g. an equity based investment has its risk reduced over time. yet in any short time scale, it could lose a lot of money. So, do you look at risk as short term volatility or long term volatility?
That effectively happened when MIFID was introduced. Advisers now have to take the person's IQ into account and make sure the person is able to sufficiently understand what they are doing. This often means having to recommend investments that you wouldn't use yourself and put people into products that are not the best option but the option that is appropriate for their IQ. It used to thought that the whole point of seeing an IFA was to get best advice on areas you didnt know about. However, nowadays, its more a case of getting the best advice that is dumbed down to your level of understanding.
In extreme cases, yes. However, in reality its more a case of someone being recommended a bog standard balanced managed fund with self balancing rather than a spread of investments in the various sectors that average out to meet the same risk profile.
At a meeting last year on complaint trends, we were shown a recent complaint on investments that only used unit trust/OEIC funds in a sector allocated portfolio. It was on fee basis (with commission rebated) and it had a very good report, the spread of funds was good and as it was on fee basis, it was low cost. We were asked if we felt it was an upheld complaint or rejected. Everyone in the room said rejected. However, it was upheld and redress paid. The reason being that because the person was a courier, he could not reasonably be able to understand short term volatility. That basis was made purely on his occupation.
Its not the risky products, but risk dealers that need banning. Lol.
Nigh night.
It's not as if I'm as thick as two short planks either. Average intelligence I guess but would struggle with some of the above.
It would increase premiums significantly, slow down the application process and only benefit a small minority of people (at typically the non disclosure rejections are only around 5-10%. The FOS has fairly good non-disclosure rules in place nowadays as well.
What about someone who decides to apportion most of their wealth to sensible, appropriate investments, but wants to blow 3% on a gamble which they know might completely collapse?
Nope.
Consumer protection is good but you can take it too far. Barclays have just announced they are closing their full advice arm and making everyone redundant. You will no longer be able to receive advice from Barclays. They have said it will no longer be viable to provide advice and remain profitable. The liability is too high. Expect others to follow suit.