A range of simplified easy-to-compare financial products should be introduced to help restore consumer trust in the industry, a UK Treasury-commissioned review has recommended.
An independent body should be set up to ensure standards are being met
The report said a kitemark badge should be introduced to help people identify the products and an independent body should be set up to ensure standards are being met.
A simple easy-access savings account, a 30-day notice savings account and a simple-term life insurance product are the first three simplified products which should be developed, to increase competition and make it easier for people to shop around, the document said.
The report estimates that 15.5 million households or 29.4 million adults with incomes above £15,000 but below £50,000, at which point they are more likely to use a financial adviser, could benefit from simplified savings products.
Some 9.7 million households or 19.8 million adults fall within the target market for simplified life cover, the report found.
The initial recommendations have been made by an independent steering group chaired by Carol Sergeant, who was formerly chief risk officer at Lloyds Banking Group.
The initial findings, which follow a consultation launched two years ago, come at a time when banks are trying to rebuild their reputations following a spate of incidents such as Barclays’ Libor-fixing scandal and NatWest’s two recent IT hitches.
The widespread mis-selling of payment protection insurance (PPI) which is predicted to become the biggest consumer financial scandal of all time, has also dented customers’ confidence. Lloyds Banking Group’s PPI bill alone has soared to £4.3 billion, it was revealed last month.
Ms Sergeant said: “When consumers arrive at the financial marketplace there should be simple processes and products available to allow them to make an informed and straightforward decision.”
The initial recommendations in the Sergeant Review of Simple Financial Products interim report will be open for further consultation, ahead of a final report in February 2013.
The group also wants to hear views on a simplified income replacement product for loss of income due to sickness, which could help 12.2 million households.
The group wants to include this in the proposed range as soon as possible, it said, given the benefits to society of this being made available to consumers safely.
The group said that each simplified product should meet people’s basic needs and no more. They should be easy to understand, compare and monitor, with no hidden surprises.
They should be non-advice products which can be bought directly from providers, helping to make them affordable to customers and commercially viable.
Each product should have the same terms and conditions and use the same language. Providers would compete on price, service and their own brand, making them easy to compare, the report said.
The Treasury launched a consultation following concerns that key features often change during the life of a financial product, such as when an introductory rate expires, making it hard for people to compare different deals.
The report said that many people in our society have a lack of skills and experience about financial planning, which comes from mistrust of the financial services industry as well as issues like a lack of self-confidence.
It said that for many people, the market seems to be overwhelmingly complicated, with a very wide range of products, some of which are difficult to understand.
The report highlighted inconsistent and confusing language in some product descriptions, saying that even their titles can cause misunderstandings and disappointment.
Financial Secretary to the Treasury Mark Hoban said: “The government is committed to putting the consumer back at the heart of the financial system, but we understand that restoring public trust in financial products is not an easy task at the moment.
“I am pleased to say that ‘simple’ financial products offer a unique opportunity to demonstrate that products can both be easy to understand and meet customers’ most important financial needs.”
The report comes at a time when calls are being made for the industry to be transparent.