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Dr. Nick Palmer (Broxtowe): On Thursday, the Treasury Committee will take evidence from people who have lost up to 99 per cent. of their investment in complex trusts. Does my hon. Friend agree that we need two separate markets: one for sophisticated products for which there is strong regulation and good advice, and one for basic products that are well protected, as recommended in the report? Does she agree that many people rarely come into contact with anyone who routinely gives financial advice? As well as looking at the possible role of citizens advice bureaux, she might consult the industry on incentivising others, such as trade unions and even employers, to take an interest in advising people?
Ruth Kelly: My hon. Friend makes some extremely interesting points. There will always be a need for financial advice for those with sophisticated financial needs who want to take advice on the different tax
We are, of course, prepared to work not only with citizens advice bureaux but with others involved in the wider industry, including trade unions, for example, to see how we might extend advice in the workplace. It is important that, wherever they are, people have access to the basic financial advice that they need.
Mr. Steve Webb (Northavon): The Financial Secretary mentioned caps on charges. What conclusion does she draw from the example of the stakeholder pension 1 per cent. cap? People on low incomes whose saving is intermittent are simply not profitable because 1 per cent. of not very much is even less, and as a result many pension providers have laid off the whole of their direct sales forcethe very people who explain the process and sell the product to people who do not have much money. Is she not worried that the same thing will happen if that attitude is adopted for other products?
Ruth Kelly: The hon. Gentleman is right to raise the concerns expressed by the industry. The time it takes for an independent financial adviser to make a sale has increased from about two and a half hours per sale 10 years ago to about six hours per sale today. Clearly, that increases the costs to the industry of every sale made, whether it is to someone with relatively ordinary needs, or someone with highly sophisticated, difficult and complex financial needs. Ron Sandler's vision is of a new framework whereby simple stakeholder products can be sold without that costly, time-consuming advice process. That will make those sales far more profitable for the industry, so I think that the industry's argument about a 1 per cent. cap on charges will evaporate.
Mr. Mark Hendrick (Preston): Without prejudicing the outcome of any FSA research, does my hon. Friend believe that the future lies in paying up front for financial advice, rather than in relying on commission for producers? Is it not important to regulate advisers as well as producers, so that customers, and not only producers, get the best deal?
Ruth Kelly: The FSA is working on how to change the financial advice regime so that those who call themselves genuinely independent financial advisers cannot be completely dependent on commissions that might skew or be perceived to skew the advice they offer. That vision is broadly supported in the report, although Ron Sandler has a slightly more flexible interpretation of how advice can be paid for.
The need for consumers to buy appropriate products is clearly at the heart of Ron Sandler's proposals. He sets out a regime in which rather than the salesperson being highly qualified and the sales process overregulated, the product itself is regulated. There is a strict cap on charges, there are limits on exit penalties, and it is simple to move between products. That is a different way of protecting the consumer, but consumer protection is clearly at the heart of the proposals.
Will the hon. Lady cast her mind back to 7 December 1997, when the then Paymaster General, the hon. Member for Coventry, North-West (Mr. Robinson), launched individual savings accounts? His pamphlet contained the statement, backed by the Prime Minister, that ISAs would attract 6 million new investorsalmost half as many people as were predicted to go to the dome. What has happened to those 6 million investors during a five-year period in which the savings ratio has fallen by two thirds?
Ruth Kelly: On a point of fact, not only is the stock market higher now than in 1997, but the market capitalisation of the stock market is almost £350 billion higher than in 1997. On the point about ISAs, one in four adults now have ISA accounts, which have extended savings opportunities to women and people who were previously non-savers.
Ron Sandler welcomes the idea of CAT standards and product regulation. He emphasises the fact that the introduction of the CAT standard in the ISA market, for example, has transformed charges for consumers, and has led to much greater competition and enhanced consumer benefits.
Geraint Davies (Croydon, Central): Does my hon. Friend agree that ordinary people simply want to be able to present their financial profile to, for example, a CAB and be offered a range of financial products with the assurance that they will be made aware of the risk that they are taking and the level of protection that they are being afforded, perhaps through insurance? In the aftermath of the problems with Equitable Life, the stock market and so on, that would enable us to restore faith in the financial community and market effectively a simple set of products that commands public confidence.
Ruth Kelly: I completely agree with my hon. Friend. It is important that we restore trust in financial products and, even more importantly, restore trust in the advice given alongside financial products. One way of doing so might be to extend the remit of citizens advice bureaux so that they offer not just advice about debt but advice about money management more generally. I welcome the fact that the FSA is prepared to look at whether providing that service would be cost-effective, and hope that others in the industry will consider seriously the way in which they might fill that gap.
Ian Lucas (Wrexham): In view of the systematic mis-selling of endowment mortgages in the 1980s, mainly due to the gross negligence of the Opposition in allowing the operation of a completely unregulated schemea consequence of that policy is the poverty and distress that my constituents tell me about when they come to my
Ruth Kelly: I know of my hon. Friend's concern, but I should like to tell him that the FSA is being proactive, as it is working with firms to make sure that they offer the appropriate information to consumers and warn them if they face a shortfall. The FSA's remit obliges it to take action that is proportionate to the scale of the problem. I am informed by those at the FSA who know better that a full-scale endowment mis-selling inquiry would cost about £5 billion for pure administration, which is not in proportion to any consumer detriment that has been experienced. That is not to say that consumers do not sometimes find themselves in significant difficulty, but of course they have the option of going to the ombudsman and resolving the problem that way.
James Purnell (Stalybridge and Hyde): Did my hon. Friend hear Sheila McKechnie on Radio 4 this morning saying that stakeholder pensions had been a great success in restructuring the market and getting costs down? Did she also see the research by the Association of British Insurers showing that stakeholder pensions had doubled in less than six months and had been taken up by 800,000 people? Will she take it from me that Labour Members welcome wholeheartedly her attempt to get lower-paid savers, particularly younger workers, to save for their retirement? Will she make a commitment to look at the tax incentive regime to see how younger workers can be encouraged to save more, perhaps through a cash-matching system, rather than complicated tax incentives that they may not understand?
Ruth Kelly: I welcome my hon. Friend's comments about the success of stakeholder pensions. We now have for the first time a system in which the majority of low-income families have access to a long-term savings product. Proposals in the report will make it even more cost-effective for people to take out that sort of long-term pension in future. My hon. Friend also highlighted the comments of Sheila McKechnie who, I know, endorses the heart of the report's proposals, which will provide significant consumer benefit in future.