The FSA is to carry out mystery shopping to monitor the use of decision trees in the sale of stakeho...
The FSA is to carry out mystery shopping to monitor the use of decision trees in the sale of stakeholder pensions.
The regulator is looking to distinguish the use of decision trees from financial advice as it is concerned there is a risk that those who help people to use the decision trees may stray into giving investment advice.
The authority believes people can be taken through the trees by, for example, call centre staff who are not qualified to give investment advice.
It is proposed that staff who are not authorised by the regulators but are taking consumers through the decision trees, be supervised to ensure they are not straying into giving advice.
Nigel Stammers, pensions strategy manager at Clerical Medical, said: "I was amazed at the length and complexity of the decision trees. Consumers need to make judgement calls on issues such as contracting out and contribution levels.
"My view is that the majority of people will need advice for these areas and whether individuals think investments will perform or if they prefer the State scheme.
"I am not surprised at all at the mystery shopping proposals as it will be very difficult to avoid going into the realm of advice during the process."
Adrian Boulding, pensions strategy director at Legal & General, welcomed the decision tree proposals. He said there was enough detail in the decision trees to enable people to work out whether stakeholder was right for them.
Boulding added that if consumers did not understand the trees they could get help from information staff at life offices rather than seek advice.
The FSA is also proposing that decision trees form part of key features documentation and said the results of the decision tree process could be confirmed to the investor by letter.
It believes that with the minimum product standards for stakeholder, such as the annual management charge being limited to 1%, using decision trees rather than the existing advice channels would reduce the costs of pension provision.
The draft decision tree also points out through the various branches of the trees, that consumers that have doubts or questions should seek advice.
As reported previously in Investment Week, the trees include a section of IFA contact information, including the numbers of the AIFA and IFA Promotion. In its discussion paper on the selling process of stakeholder pensions, the FSA states it will be responsible for the regulation of the selling process of all stakeholder pensions.
It will also authorise all stakeholder pension scheme managers, such as life offices. Opra will regulate the governance of trust-based stakeholder pension schemes and will also keep a public register of all schemes.
The FSA is looking to prescribe the design and use of decision trees to promote consistency between firms while allowing stakeholder schemes and firms to produce material to complement the trees.
It recommends that a consumers may be taken through a decision tree by a representative of a product provider although they will be limited to doing this if they are not qualified to give advice.
The regulator said firms will need to make clear whether the investor would be advised to go elsewhere for advice or whether extra charges would be made for giving advice and how much these would be.
The FSA added that IFAs could also take consumers through decision trees and not give advice. If they were to give advice on certain portions, they would have to make it clear that there was to be a charge.
On worksite marketing of stakeholder plans, the FSA believes that a presentation to a group of employees would not constitute the giving of advice as the presentation would contain details such as the pros and cons of the scheme. It said that the individual giving the presentation might send out a direct financial promotion for individual employees and this could include decision trees.
For the full discussion document go to: fsa.gov.uk.
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