In 2007 the Financial Services Authority is looking to dump the current obligation to supply a ‘Key features document’ to all prospective buyers of life policies, personal pensions and shares in investment trusts. Instead will very likely come a so-called POS ‘Quick guide.’
Topic: Financial services
Who: The Financial Services Authority
Where: Canary Wharf
When: July 2005
The financial services industry watchdog the Financial Services Authority ("FSA") published a paper entitled "Investment Product Disclosure: proposals for a Quick Guide at the point of sale".
The paper sought views by 31 October 2005 on a proposal that firms selling investment products such as life policies with an investment element, personal pensions, shares in collective investment schemes or investment trust saving schemes should give prospective customers a "Quick guide" at the point of sale.
"Informed decisions" objective
The objective of the FSA is to give consumers the information they need about a product and its charges so that they can make an informed decision about whether to buy it and to ensure that the information is presented in a format and at a time that helps consumers make comparisons between products and providers.
One of the difficulties that the FSA recognises in this context is that many consumers simply do not read the information that firms give them at the time of sale, hence this initiative. There had been earlier proposals to improve the way in which information was supplied to consumers, and the July 2005 paper now develops the FSA's thinking to a point where there is a now specific proposal in the form of a suggested obligation to make available at the point of sale a so called "Quick Guide".
Key Features Document fails the test
Up until now the purpose in hand here has supposedly been served by the required "Key Features Document" or "KFD". Research showed, however, that the KFD has failed to stand out and identify itself as being important, was perceived as appearing boring and impenetrable, suffered from uncertainty about the exact role of the documentation and from the reliance that many consumers rely completely on the advice delivered orally by their adviser.
The proposal is that firms offering relevant products for sale should:
- produce the Quick Guide as a stand alone document rather than as part of another document;
- put the Quick Guide at the top of the marketing pack, rather than randomly within it;
- produce a Quick Guide that follows a standard, tabular format containing 10 set numbered questions and bulleted answers;
- ensure that the Quick Guide is no longer than two sides of printed paper; and
- include the "Key facts" logo and a "regulatory message" in the Quick Guide and limit the inclusion of other logos, for example distributor logos.
The idea is that the Quick Guide will be the first layer of information consumers receive and will signpost where they can find further information. Because it will cover some of the information presently covered by the KFD, the FSA envisages that the Quick Guide will replace rather than be in addition to the KFD.
Numbered questions preference
Consumer feedback suggested that consumers would prefer numbered questions in the Quick Guide to enable them to find information quickly and easily, a tabular format and overall, a format which is seen as being clear, logical and with impact.
The FSA intention therefore is to prescribe a template which would consist of a table including the following numbered questions:
1. What is a [product name]?
2. Who is it right for?
3. What are the benefits?
4. What are the risks?
5. What is my commitment?
6. What will I get back?
7. Are there any guarantees?
8. How flexible is it?
9. What are the charges for?
10. What do I do now?
Separately, the proposal is that firms be required to provide relevant signposts to specific page numbers within any of the other literature supplied with the Quick Guide, where more information on the particular answer can be found.
The plan is to impose the responsibility to provide the Quick Guide on the person making the recommendation or arranging the sale and to introduce guidance suggesting that firms draw the customer's attention to the accompanying product information, explain its content and encourage customers to read it.
The current thinking is to impose the new disclosure package in 2007, to align with the planned implementation of the FSA's proposals on the Investment Services Directive.
Why this matters:
The FSA continues here to seek the Holy Grail of financial services buyers who are interested in and bother to read product information that they are legally obliged to be shown.
There has to be a question as to whether a so called "Quick Guide" is any more likely to be read and understood than any "Key Facts Document", but the intentions are laudable and as long as the Quick Guide is to replace the KFD then hopefully this will not represent just another layer of regulation for financial service intermediaries.