The Association of British Insurers (ABI) is urging the government to include a reform of Mifid II in its review of the wholesale and retail investment market.
The association believes that, post-Brexit, HM Treasury and the Financial Conduct Authority have the opportunity to change the regulation to better help consumers engage with their pensions and investments.
For instance, the ABI is proposing giving do-it-yourself (DIY) investors greater guidance from product providers, so that they can make more informed decisions and receive reassurance about them.
What the association would like to see is a change in regulation so that platforms and pension companies can “guide customers through the consequences of different decisions they might take in relation to their pension and investments”.
In order to do so, the ABI wants the Treasury to amend the Regulated Activity Order, which defines what constitutes financial advice. This should come hand-in-hand with a change in the FCA rulebook on the advice/guidance boundary, it added.
If such a change was to be implemented, the trade body argues that investment and pension providers could:
- Explain to customers the possible consequences of taking a lump sum from their pension;
- Take them through what a sustainable pensions income could look like;
- Provide more details on risk within investment pathways, including withdrawal rates not matching their objective;
- Give guidance to people to make sure they don’t run out of money in retirement;
- Intervene “more strongly” to warn customers of investment scams; and.
- Help clients decide to transfer from one fund to another if this is in their best interest.
Need to ‘go further’
On top of this, the ABI believes the 10% drop notification should be abolished, because often customers get “spooked and withdraw their investments leading to cash losses”, rather than remain invested.
Reuben Overmark, senior policy adviser & investment platforms specialist at the ABI, said: “The past decade has seen a rapid rise in participation in financial markets because of large numbers of people automatically enrolled into a pensions and digital access to financial markets through investment platforms.
“But navigating the financial world can be confusing for savers with many unsure on the best course of action to take when it comes to their accessing their pensions and choosing investments.
“It’s a positive step forward that the FCA has indicated they will introduce a new way for firms to help customers start investing in a stocks & shares Isa – but we’d like to see them, and the Treasury, go further.
“By reforming the advice/guidance boundary, pensions savers and DIY investors will be able to get more help and reassurance from their provider on their investment decisions. This means customers can make more informed choices about sustainable income in retirement as well as risks and opportunities in the products they are considering.
“Providers will also be able to reassure customers in times of economic volatility and intervene more strongly to warn customers against scams and dubious investments.”
Personalisation
Nathan Long, senior analyst at Hargreaves Lansdown agrees with the ABI’s call to action.
He said that the current framework makes it hard for product providers to tailor communication and provide specific information to customers, as it implicitly becomes a “recommendation”.
Long said: “We wholeheartedly support the ABI’s recommendations. This is an opportunity to change the rules for the better, so that providers can give investors enough support to help them make better financial decisions.
“We would love to tailor communications to the needs of our clients. We know it would drive engagement with investment and pensions, and improve outcomes. However, once you try to personalise communications you’re very quickly hamstrung by the advice/guidance boundary.
“The current rules make it very difficult to personalise generic content with enough information to be useful, because it becomes an implied recommendation.
“So, for example, if someone has invested in a high-cost index tracking fund, you can’t highlight specific cheaper alternatives, even if they are like-for-like, which is a barrier to investors taking action in their best interests.”
