As I passed through school and university, I took on a number of part-time jobs to help pocket extra cash. My first job was as a Media Distribution Officer. But as I grew older, I put my hand to Field Nourishment Consulting and used to help my uncle as a Mortar Logistics Engineer.
No idea what I’m talking about? Let me translate.
I began a paper boy, became a waiter, and was occasional labourer on my uncle’s new house.
The descriptions of my former jobs, however, are not the limit of confusing titles that rather lack transparency. Financial products’ descriptions have come in for criticism for failing to communicate their true nature and for not protecting consumers from poor investment decisions.
For example, structured products boasting solid sounding names such as Fixed Term Capital Secure Investment and Capital Protected Fund have been popular destinations for thousands of savers, promising returns linked to any rise in the stock market. So successful have high street banks been in selling these products, that they currently account for £53 billion of Britons’ savings, and have attracted £1.3 billion in the first two months of this year alone as desperate consumers look for ways to protect their savings.
A more thorough look under the bonnet of these investments, though, suggests they may not be as secure as their names would infer.
If the investment fails to hit its target, the product usually offers no return and can even start to lose money. Furthermore, only a few of these types of investments are protected by the financial services’ safety net if the bank goes bust. Unsurprisingly, the Daily Mail labels them the “£58bn Gamble” extrapolating that savers will invest another £5bn this year alone.
Indeed, the issue of product transparency is not new.
“Cautious” and “Balanced” fund investors were left shocked as they watched their savings plummet in the financial crisis, unaware that up to 60% and 85% of the funds could be invested in equities. Only after widespread criticism did the Association of British Insurers (ABI) and then the Investment Management Association (IMA) respond to consumer pressure and rename their funds in January to better indicate the investment risk.
It is little wonder, therefore, that research carried out last year showed that the financial services sector is regarded by consumers as unfair, insufficiently competitive and inaccessible
However, to what extent can transparency satisfy consumers concerns?
Unfortunately, Adam Phillips, Chairman of the Financial Services Consumer Panel, believes transparency can only go so far. In a speech last month he explained that the language used by consumers to describe financial products is conversational, not totally precise and not always fully informed and so will always be in disconnect with opaque, complex and legalistic industry language in the agreements consumers are required to sign. He concluded, “Consumer protection is a complex area, where transparency alone will not be sufficient”.
But what will be sufficient?
Next year, the Financial Conduct Authority (FCA) will take over responsibilities from the Financial Services Authority (FSA). It will have more powers to release information to consumers about defective financial promotions, enforcement actions and complaints data so that consumers have the necessary information to take informed decisions. Moreover, the FCA will have the ability to oversee the design of financial products, mandate minimum standards or place requirements on products as well as withdraw misleading promotions with immediate effect.
The FCA, Mr Phillips believes, will “herald a fresh start for consumer protection in the UK”. Though it will not exist as a legal entity until next year, April 2 saw the division of part of the FSA’s advisory team into the future FCA and banks and insurers will start to feel the impact. Soon we will be able to see if the FCA is making a difference, and whether the new “Consumer Champion” learnt from the FSA’s failures in their “Lessons on plain speaking”.