So it’s goodbye to the “Key features document” and hello to the “Key facts document”.
Topic: Financial services
Who: The Financial Services Authority
When: February 2003
The Financial Services Authority published a consultation paper entitled "Informing consumers: product disclosure at the point of sale."
In its continuing battle to redress the natural information imbalance between customers and providers of financial services, the FSA has reviewed the current regime, introduced back in 1995, for disclosing key features of packaged financial products in advance of the punter making a decision to buy.
This consultation paper makes a number of proposals for significant changes and the current plan is to introduce them by July 2003.
At the heart of the existing regime is the so called "Key features document" (KFD). However this has not been a raging success with the consumer. This is for the simple reason that consumers do not read the KFDs they are given. Instead they either rely on what they are told by advisers or they confuse the KFD with marketing material and dismiss it (so much for marketing material!).
In the light of this, the FSA has determined that a move towards reducing the overall volume of information to be provided in the core document is the best way forward. The new core information document should focus on suitability and product costs. It will also rejoice in a brand new name. Instead of a "Key features document" it will be a "Key facts document" with "examples" instead of, wait for it, "illustrations". The FSA plan is to prescribe the front cover of the new Key facts document and permit only limited provider branding. The FSA logo will also have to be shown on the cover along with a "regulatory message" explaining that firms are required to deliver the document to consumers before they make a decision to purchase.
The structure and content of the Key facts document will be prescribed and most of it will follow a Q&A format expressed in "plain, direct language, using no jargon and simple sentence construction."
The overriding imperative will be to keep the detail supplied to consumers at a moderate level.
On the proposed FSA logo, the FSA does not for some reason imagine that there is any realistic likelihood of punters regarding its appearance on the front of the Key facts document as some sort of endorsement.
On past performance of funds, there continues to be massive doubt as to whether these give any reliable indication of future performance, but the FSA feels unable to reject this approach altogether on account of requirements contained in the "UCITS III Directive", dealing with undertakings for collective investments in transferable securities.
So far as life products are concerned, firms will no longer have to give "what you might get back" projections, although for pension products, similar information may still be given to illustrate the buying power of an accumulated fund. Examples will also have to include, a "today's money income equivalent."
Why this matters:
It is interesting that according to this FSA document, punters dismiss information about financial products if they regard it as part of marketing material. An earlier report from exactly the same body seemed to indicate entirely the contrary when stating that purchasers of financial products were hugely reliant on the content of advertising material in coming to a decision as to whether to buy. Be that as it may, for those producing financial product information, these developments will have to be watched very closely, although the suggested transitional periods of one year for non life products and three years for life products seem relaxed enough.