Our responses to the Sergeant Review

19th October 2012

Chapter 5 Simple Financial Products Principles

Q1. Do you agree that there should be a set of high-level principles?

Yes.  However, it is important to get an honest reflection of the providers’ reactions to these principles to ensure that they will support the Simple Financial Products. It is no good having a great set of principles but no products.

Principles and any agreed badge/endorsement can create the opportunity for misuse, misunderstanding and misinterpretation.  How to police these principles is just as important as developing them in the first place.

Q2. Do you have any comments on the proposed principles?

Principle 2 & 5. We believe these principles dovetail. We agree that a standardised version of the Banking Code of Practice Sourcebook (BCOBS) summary box is a great idea. It should be exactly the same from each provider, so that it is simple for customers to compare products.

In our experience, the ID process is a real impediment to opening and moving savings accounts.  At present the questions asked on application forms vary from provider to provider in both content and jargon.  Savers may abandon the application process if they are unsure of how to answer.

It would therefore be beneficial for all providers to have standardised application forms and a standard surrender or switching form/approach, most notably the identification process and a plain English review of all standardised documentation would add value.

Principle 3. A standardised name that clearly identifies the product will help customers identify which products can be easily compared. But how can we ensure that other products that are not part of the Simple Financial Products range are not launched with similar sounding names? This will need to be closely monitored as it could become a new way to lure customers.

Principle 6. We agree that a clear and simple pricing structure is important and ideally each provider would only offer one rate, but accept that providers may need to use different pricing dependent on the distribution channel.

We understand the cost differential between different channels and that Branch is usually the most expensive. Allowing providers to offer different rates for different channels may encourage greater competition but will add to consumer confusion and make it harder to compare like with like. If differentiation were to be allowed, our preference would be that the non-branch option may only offer one rate.

Point 6.24.  In terms of keeping customers informed of any changes to the rates, the principle is quite simple. If you are open and honest, people will begin to rebuild their trust. Our customers registered with Rate Tracker are grateful simply to be informed when their rates change.  This is a very basic requirement and one that we believe all providers should be providing. 

Point 6.26. We wholeheartedly agree that it should not be possible for providers to launch new issues of the simple savings products as this is a very clear way of confusing customers. If there is only one of each type of account, then customers will be able to more easily identify the rate they are earning and not be bamboozled by which ‘issue’ they are in.

Point 6.27. Payment Services Regulations (PSRs) and BCOBS are a good place to start with regard to notification of a change of interest rate.  But we believe that allowing providers to notify up to two months in advance is too long. People can easily forget if they are not re-reminded. We believe that one month is more advantageous and perfectly adequate if the switching process is simple.

In addition the expression ‘materially reduced’ is jargon and therefore meaningless. As mentioned above (Point 6.24), a basic need of savers is to be told whenever there is a rate change. We recognise that there is a cost consideration yet we stand by the fact that customers have the right to be told whenever a rate changes.  Directing savers to a website (Money Advice Service or others) to check any changes and competing offers would enhance the service further.

Principle 7.  Any ancillary fees should only be charged if the providers charge these anyway.

Principle 8.  In addition to our comments above (Point 6.27), we also agree that the form and frequency of these notification requirements will need further discussion. It would be good to offer customers the choice of medium that they are most likely to read, such as email, text or letter.

With regards to a review of the AER, we agree with this for the savings industry as a whole as it is still difficult to compare different products.  AERs for simple savings products should all be calculated in exactly the same way at the very least.

An actual example of how much interest savers could earn in pounds and pence is also useful. Please see the calculator on our best buy tables as an example. Click on the plus sign next to “What interest could I earn?”.

Q3.         Do you agree that firms should be limited to one issue of each Simple Product type, per brand, per channel?

Yes and no.

Yes to one issue of each product type and yes per channel.

However we take issue with the ‘brand’ requirement.  Making it ‘per FSCS licence’ is easier and fairer for consumers.

Our customers are often confused about which brand falls under which licence. Therefore there is a danger that savers could end up with money that is unprotected. Trying to explain that some providers are linked adds another complicated aspect. Instead, perhaps they could have one of each product branded under the parent company, but available via each brand.

Alternatively a stark message could be issued on application – for example

We are part of a shared Financial Services Compensation Scheme Licence. The following providers are all covered by our parent Company; The Bank of Scotland Plc:

AA, Aviva, Bank of Scotland, BM Savings, Halifax, Intelligent Finance, SAGA, and St James's Place

As a result, if you hold more than £85,000 in total with these providers, not all of your money may be protected by the FSCS.

Chapter 6 Simple Financial Products

Q4.         Do you agree with this initial suite of simple products?

Yes.  Although we are far less excited about the notice account as they are a bit passé these days. The notice account market plays second fiddle to Fixed Rate Bonds in popularity.

If we want to encourage people to build up their savings, a simple regular savings account would also make a lot more sense. At the moment, T&Cs on regular savings accounts vary hugely.  They would really benefit from being simplified.

Q5.         Do you have any comments on product design?

As a whole we like the simple basic design.  It is what some providers already offer and we can see just how competitive they can be if they want to. We have also mentioned earlier our concerns regarding offering too many distribution channels and one product per brand, per channel.

We question whether having a maximum balance will add to simplicity. A maximum balance is one more condition.

We know that many of our users fall within the target income brackets but have significant levels of savings, particularly pensioners. Making such savers split their savings between such accounts

On the other hand if a maximum encourages more providers into the market, then due consideration must be given to savers and their ability to compare and open multiple accounts.

Given the target market of households with an income of between £15,000 and £50,000, was any research done into the target amount that each household may look to save?  That would be a good place to start the debate about maximum savings allowances.

Chapter 7 – Endorsement

Q8.         Do you agree with this approach?

We love the idea behind Simple Savings Products.  We agree that some sort of badge that clearly signposts which accounts are free of complicated terms and conditions is in the interest of savers.

However, we are concerned that too many principles will make the whole process onerous for providers.  If simple savings are not commercially viable, providers will not offer them.  We have seen this this happen before with CAT standards and Stakeholder products.

If the number of providers is low, competition will be reduced and savings rates will likely be unattractive.  Yet, there is a danger that signposting will still encourage savers into simple savings accounts.

Point 7.7 Whilst ease for the consumer is important when considering endorsement, we believe that reliability is equally essential. If accounts are launched with great rates that are slowly eroded, savers will lose faith.  In such a scenario, the initiative will become another damp squib - joining the ranks of CAT standards and Stakeholder products.

Chapter 8 Governance

Q9.         Do you agree there should be a formal independent accreditation process?

Q10:      Do you agree with the proposed approach to accreditation?

If there are principles that need to be met in order to achieve a badge to prove a simple status, then clearly there needs to be an independent accreditation process.

Is the cost going to be prohibitive? We also have no idea how powerful or toothless any accreditation body would be. If providers lose their endorsement what are the consequences? Obviously the regulator will also have a role to play in ensuring advertising is clear fair and not misleading, for example.  It will be important that overall governance does not fall between two stalls.

Regarding point 6.22 we feel that one of the roles of the independent accreditation committee would be to maintain best buy tables of the simple savings products.  We feel that providers should display this best buy table – or clearly point out where savers can find this information - in order to show customers if their badged simple product is competitive or not. Displaying results against peers should encourage providers to pay more competitive rates.

Research Recommendations

Q11:      Do you agree that on-going and systematic consumer research is required to support the Simple Products initiative?

Research is costly and may detract from the commercial viability of simple savings, particularly if costs are passed through via higher licence fees.  Research might be nice but it may not be necessary.  We suggest a simple market audit instead:

  • Ask the providers once per year how many Simple Account clients they have;
  • Ask for total and average balances;
  • Ask how many have switched in and out and about new account openings;
  • Ask for rate/rate change information;
  • Ask these questions per brand/licence/channel as necessary
  • Publish the results

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