The suggestion that product providers be paid according to the ‘level of satisfaction' which a product provides, seems to be taking the nanny state to every greater extremes.
How you define the level of satisfaction in the first place is an issue the Treasury Select Committee doesn’t address.
And in what other industry or sector are customers allowed to use the product for so long, and then ask for a refund under some so-called vague definition of a lack of satisfaction? If this were applied to the financial services industry it would result in a level of farce not seen since Hoover offered free flights to New York.
Obviously the TSC is specifically driving at the supposed level of satisfaction which is said to be around for endowments linked to mortgages. It seems incapable of differentiating between a supposed guaranteed repayment of the loan by the endowment and the fall in returns from equity markets over the last five years.
In the first place, the endowment scandal is not the scandal consumer groups are shouting about. There will obviously be cases of policies being sold in the wrong circumstances, but in the majority of cases this will not be so. Those endowments will have been sold on the basis that, using past performance numbers and projected future returns, the policies should have been sufficient to repay the loan.
As we all know, we have had three years of a savage bear market in equities which put all future projections out of the window. Is that a case of mis-selling, or just the benefit of hindsight? It certainly feels like the latter to us.
Putting aside the endowment issue, the thrust of what the TSC saying seems to be attacking – again – the remuneration system for the industry.
But politicians, regulators, consumerists and critics in general, continually miss the fundamental point. That is that most consumers do not buy financial services products – they have to be sold them.
In order to sell something – someone in the process has to be incentivised. If they are not then they will not sell the products. It might be crude, and it might be slightly unpalatable, but it is a basic fact of life.
Rather than criticise the industry’s remuneration system the politicians would do better to tell consumers to take control of their own financial lives. But of course they won’t do that, because no one gets elected by doing something unpopular which is actually for the country and the individual’s lon- term good.IFAonline
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