October 24, 2011, by Andrew Burden

Simple Financial Products: Summary of Responses

HM Treasury recent published a summary of responses to the questions posed in its earlier consultation paper and has formed a steering group to take matters forward. I agree with the observation that the term “simple” is far from ideal and also that a strong brand must be developed. Some kind of kite mark or logo to demonstrate compliance with standards would also be helpful to assist consumer choice.

The majority of responses were against a price cap for such products, which in any event is not part of the Government’s thinking. However, some of the reasons given for not supporting a price cap were problematic. Claiming that such a cap is not needed as the “free market” should determine prices that competition between providers will keep prices low misses the point somewhat, given the levels of opacity associated with the pricing of many products and the high degree of information asymmetry apparent in the market place.

There was a large degree of negative comment around the suggestion that “simple products” could form a benchmark against which the recommendation of other products would need to be justified as more suitable. This is perhaps not surprising as it is one of the few proposals which may ensure the popularity and raise awareness of simple products. The Government should hold firm and ensure that some form of benchmarking is included in any definitive proposals.

James Devlin (Professor of Financial Decision Making, Nottingham University Business School)

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