More comments have come in on the FSA's plans to reform the use of projection rates to avoid creating further misunderstanding in the minds of consumers as to what sort of returns they might expect from financial products.
Here are some more comments from intermediaries and consultants (see at the bottom of the page if you'd like to add your thoughts).
One financial services consultant (name and address supplied to editor) says:
As a consumer I have always found the prediction of future growth rates quite worthless. As I recall, they were originally designed to help the consumer establish how much cost the life provider or fund manager was taking in charges and therefore you could see if you were getting a good or fair deal. I am sure that actuaries can make these numbers appealing regardless of charges.
I would prefer to see anticipated fund values based on actual growth achieved in the past (since the investment inception) and predicted growth based on generic assumptive rates. At least that way I can take a measure of what my chosen investment manager is doing each year and past performance is relative to my own plan rather than "an average" ideal. This would at least allow me to plan my investment requirements for the future with some degree of accuracy.
If endowment plans had shown actual and predicted fund values in the same statement each year there would have been less of a shock for most and some would have done something about it whilst they had time.
Brigid Benson, IFA at ethical intermediary firm The GAEIA Partnership, says:
I read with dismay our latest e-bulletin from the FSA announcing the review of projections and the news that they have "an open mind" and welcome views. They clearly have more time than we do to pick over all the procedures and emphasize weaknesses in the UK regime, even undoing the simple parts that work reasonably well.
We devoted so many hours responding to CP121 on de-polarization, we have not recovered yet and vowed to spend no more time on such unpaid activities.
It is such a shame that the networks and service providers that have grown thanks to business from IFA firms, are using the profits to speculate and take advantage of business opportunities and fads that may neither be supportive of IFA firms nor in the long term interest of consumers.
Comment from an IFA(name and address supplied to editor):
As long as someone is available to pay for the FSA, there will be no shortage of wonderful, intellect-driven, impractical ideas for 'consultation'. These will use up vast forests of paper and receive massive amounts of press discussion, which equals more trees destroyed.
A client will receive sixteen more pages of information that only the FSA believes that they should have or need. Accountants, let alone clients, have problems understanding it all! When the rules change again in three or four years or one or two FSA regulators down the line, we will be told that that information was not good enough, confused the public and the product was missold.
As an industry, our most noted achievement is to help create a Quango which employs over two thousand people for the taxpayer to subsidise. Then the industry employs another couple of thousand compliance officers to interpret their books of rules.
The Quango fines the companies on the flimsiest of excuses: photocopies have been mislaid or procedures were not carried out quickly enough to nullify PI cover. Overstretched and struggling with-profit funds will transfer more money to the Fine Setting Authority while the Chancellor raids everyone else's pension funds by the back door to pay for the MPs and FSA's pension funds.
What happened to the customer in all this? There are fewer companies to choose from and fewer advisers available to help when needed. Those advisers that are left are pushed to afford the uncharged time, to deal with a claim for a client's death or cancer under critical illness cover, for example, which is our most important work surely. The costs have gone up and fees have to be charged. The customer pays!
Carol Fraser, IFA at Ashdale Investments says:
With yet another half-baked idea coming from the dreaded FSA, I would like to know when they are going to something of real value for the investor.
Such as: assisting a lady (58) with a pension fund of £1305.09 (she retired early), a transfer value of £1071.00, a 5% projection of £1050 and a 9% projection of £1120. She is therefore being forced to leave her cash invested to reduce considerably by NRA.
It would seem to me the FSA should stop trying to make a name for itself and settle down to really earning the immense amount of cash we are all being forced to pay, redress cases such as the above, and follow up with sensible audits to ensure rules and regulations are being adhered too.
Furthermore, we do not need any more new regulations, otherwise IFAs, followed by the FSA, will be out of business in approximately five years if the last five years are anything to go by.
Dave Knight, financial planning consultant at Temple Financial Planning, adds:
There is not much wrong with the current range of projected return rates, but differing investment approaches will result in very different end results.
If the rates were allied to a generalised underlying risk profile, then they would make more sense.
For instance, if the 4% rate was categorised as a lower risk return typified by gilt and fixed interest funds, the 6% return potentially achievable with a moderate risk approach, such as with-profits or a balanced spread, and the 8% only achievable with a higher risk approach, such as fully in equities or other economic sectors reviewed regularly, then the risk versus return equation would be well illustrated.
The result would be that clients would be reasonably clear that the eventual return would be inextricably linked to the risk taken.
This sort of change would not affect the basic fundamental projection system, but would provide clients with a much better understanding of asset allocation and long-term trends.IFAonline
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined