MSE News: Government continues simple financial products crusade

SnowMan

JuicyJesus wrote: »

If you don't understand a transaction you intend to make but push ahead with it anyway, then whose fault is it if that lack of understanding means you lose out? If you are given a document which contains details of how a product works but you don't read it, whose fault is it if you lose out as a result?

So if someone has a learning disability and are unable to understand the document then you are arguing it is their fault for having a learning disability? How sad.

If someone has Alzheimers and is given the document and ends up signing the documentation then it is their fault for having dementia. How sad.

oldvicar

I don't think anybody will argue against protecting the vulnerable.

Where it goes wrong is when fully capable people are given all the correct information and through their own GREED choose a product which isn't really right for them, then expect everybody else to compensate them if their gamble goes wrong.

SnowMan

oldvicar wrote: »

I don't think anybody will argue against protecting the vulnerable.

Where it goes wrong is when fully capable people are given all the correct information and through their own GREED choose a product which isn't really right for them, then expect everybody else to compensate them if their gamble goes wrong.

I think most people would recognise that taking away all personal responsibility from people in decision making such as choosing a financial product would be a bad thing.

But to provide some protection those who are unable to realistically make an informed decision you do need to make sure that savings and investment products are not un-necessarily uncomplicated and that customers are being treated fairly.

If we look at savings for example I would say that products are relatively simple still. But I think it is important that products don't become overcomplicated. Let's take a 5 year bond. What we see are some institutions offering stepped bonds paying say 3%, 3.5%, 4%,4.5%,5% over 5 years. To me that is an over-complicated product that shouldn't be allowed; it is just a 5 year bond being complicated. It is not an innovative product meeting some specific unmet need - it is just an attempt to confuse.

The biggest problem however is not simplicity but people being treated unfairly. I am thinking of the person in e-saver 4 paying 0.2% when the institution is offering a near identical internet saver 15 at 2%. To me that is completely wrong. If you have learning difficulties or dementia say what is to protect you from ending up in the 0.2% account?


I think the problem of people making an informed decision at the time, things going wrong because the risk they have taken on an informed basis hasn't paid off, and then complaining is a different issue. If products were simpler this should happen less often; and there would be less chance of their complaint being upheld as after all it is a simple product so taking into account their decision making capabilities it will be easier to reach the conclusion they should have understood it.

The most vulnerable people do not tend to complain in my experience. They may not have the capability to make the original decision and equally they don't have the capability to realise they have been mis-sold or capability to make a complaint. So the main protections in the system shouldn't be the rights of people to complain (and the fears of institutions that people might make a costly complaint to keep their original marketing and sales processes in check) but should be based on keeping products as simple as possible and make sure customers are treated fairly in the first place.


The other important issue with keeping products simple is the un-necessary time spent by people in reading terms and conditions to spot the cons. It is no point creating a society where things are made or done and created more efficiently, and so people on average have more free time to do the things that really excite them, if that extra time is having to be be spent looking through terms and conditions of savings products. OK some of us might admit to enjoying this but generally it is a chore not a joy.


A lot of the arguments seem to be based on the logic, I don't find it at all difficult to find the best accounts and read through the terms and conditions and spot the nasties, therefore everybody else should have no problems either, and if they don't they are just being lazy. I can admit to thinking that way in the past. But it is is dangerous not to at least consider that others experience might be different and they might not find understanding and decision making on choosing financial products at all easy.

CLAPTON

so, SnowMan, interestly you would ban the government Index Linked Saving Certificates (now suspended) even though they were probably the best saving product on the market?

oldvicar

CLAPTON wrote: »

so, SnowMan, interestly you would ban the government Index Linked Saving Certificates (now suspended) even though they were probably the best saving product on the market?

That is a really interesting example Clapton.

IMHO how they work is very clear, and the terms and conditions are clear, brief, and well written. But never have I seen so many misconceptions and misunderstandings surrounding one product, as debated here on MSE and in other media.

SnowMan

CLAPTON wrote: »

so, SnowMan, interestly you would ban the government Index Linked Saving Certificates (now suspended) even though they were probably the best saving product on the market?

I can't remember exactly how it was advertised but in principle I certainly wouldn't ban that. An inflation linked account meets a genuine need so is OK in my book.

Any account that was paying RPI + 0.5% (say) would be OK as long as it wasn't dressed up to look like it was RPI +2% (say) and was set up in as clear a way as possible. I remember a Post Office RPI linked account fairly recently being dressed up to make it look better than it was - that would not be acceptable.

oldvicar

One area which I have noticed causes confusion, judging by posts here on MSE, is the simple fixed term bond. The sort where a bnk or building society says, for example, invest in out 5 year bond and receive 4.75% GROSS/AER each year.

The problem I perceive is that (far too) many people assume they can access their money before the term is up ... "but it is MY money...so why can't I have it"

Some bonds do allow early access (usually complete closure and with a penalty) - often the better institutions such as Nationwide, but with rates just shy of the highest. But many many more, often those seeking to top the best-buy tables, such as PostOffice/BankOfIreland, do not.

As people are increasingly chasing the better rates promised by fixed-termers, I perceive there is a problem brewing here. But how can you stop people mis-reading "no early withdrawals", as they do, even when its prominently mentioned. Do you get to government to regulate/ban such products?

oldvicar

SnowMan wrote: »

I can't remember exactly how it was advertised but in principle I certainly wouldn't ban that. An inflation linked account meets a genuine need.

Any account that was paying RPI + 0.5% (say) would be OK as long as it wasn't dressed up to look like it was RPI +2% (say) and was set up in as clear a way as possible.

Oh dear! NS&I had just started down that slippery slope, wrongly in my view, with advertising saying that 'RPI + 0.5%' is equivalent to 'RPI plus 1.0% for a 50% taxpayer', or 'RPI plus 0.625% for a basic rate taxpayer'.

I am sure their motives were honourable, but I feel that such presentation lacks the rigour of being accurate, and is plain wrong because 'tax-free' is not the same as 'after tax'.

SnowMan

oldvicar wrote: »

Oh dear! NS&I had just started down that slippery slope, wrongly in my view, with advertising saying that 'RPI + 0.5%' is equivalent to 'RPI plus 1.0% for a 50% taxpayer', or 'RPI plus 0.625% for a basic rate taxpayer'.

I am sure their motives were honourable, but I feel that such presentation lacks the rigour of being accurate, and is plain wrong because 'tax-free' is not the same as 'after tax'.

I think my gripe with the NS&I certificates were that they were offered tax free at all. Would it not have been better if they were offered at a slightly higher rate (to allow for the average tax paid) and were taxed at individual's marginal tax rate in the normal way as other (non ISA) savings income?

If you want to alllow people to save more in a tax free environment (and I emphasise if) then just increase the cash ISA limit and allow people the choice of what to invest in.

opinions4u

Isn't one of the most confusing issues around savings and investments the different tax rules and different tax rates that apply to different situations?

Our great rulers create most of the confusion out there. If they want to simplify that, then I'm all for it!