Investment and endowment product remuneration should in the future only be paid if products deliver "a satifactory return", Treasury Select Committee officials have argued.
A report published this morning by the Treasury Select Committee into the current endowment shortfall crisis argues potential mis-selling is likely to continue as the way in which investment firms are currently remunerated rewards firms for the sale of products, rather than the performance they deliver, is "inappropriate".
Several different sectors of the investment industry have been criticised - including with-profits and the Equitable affair - making a report in the endowment crisis much wider ranging than initially anticipated.
In particular, the industry and government ought to develop a fee payment system on product management which "reinforce's the industry's duty of care to the saver" over remuneration for client acquisition, says the TSC.
However, the TSC also seems to be suggesting the tax advantages of endowment products may be partly responsible for their take-up over repayment mortgages, as it argues "more needs to be done to ensure that financial products and the tax system surrounding them are simplified as much as possible".
A full copy of the report is not due to be posted on the TSC website until around 3.30pm, says a spokesman for the Committee, however, the TSC report states:
"The industry suffers no direct financial loss itself from the endowment shortfalls and can charge the same fees whether the product delivers a satisfactory return or not. This inevitably raises questions about the industry’s fee structure.
"It would be preferable for the fee structure in the long-term savings industry to reward the delivery of superior investment returns and the provision by the industry of the sort of after-sales care that was spectacularly missing in the case of endowment mortgages."
Damning comments by the TSC also suggest it is once again the sales process which created the current crisis in endowment shortfalls as MPs once again point the finger at commission-based remuneration as the potential cause of the problems and argue 50-60% of endowment policyholders believe they have been missold.
Not only were there failures in the way products were sold, says the TSC, but the way assets were managed did not generate the level of returns for investors that had been anticipated.
Once shortfalls on endowment mortgages then surfaced, the life insurance industry failed to properly inform customers about the status of their savings and investment returns and then did not sufficiently manage the compensation process.
The Treasury Select Committee says the FSA needs to shore up the regulatory regime as it believes the current financial services regime seems unable to prevent an "inappropriate business model" from changing.
Problems within the endowment market look similar to the those affecting the with-profits sector, according to the report, as MPs believe even after the FSA's proposed reform of with-profits products, consumers will still be buying investments on "little more than an act of faith".
Many of the proposals set out could actually be quite difficult to pursue, as the TSC suggests any future survey by the FSA of the endowment sitation should forecast the likely state of equities when particular policies mature.
Any reform of the life insurance companies' actuarial process needs to be more effective in providing warnings where there are potential problems, as well as a more proactive and "independently-minded actuarial advice".
The FSA should also make it a basic principle to give regular information to all investors in long-term savings products about the asset allocation policies of investment firms, and how this adds or detracts from the performance of the fund.
That said, the Select Committee recognises the sheer volume of regulatory constraints being placed on the industry are now imposing counter-productive costs which could atually price lower earners out of the long-term savings market.
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From 1 March