The majority (61%) of advisers questioned by AJ Bell said Key Features Illustrations (KFIs) do not achieve their objective of explaining to clients the charges they will pay and the benefits they will receive from the product they are investing in.
The findings suggest that in their current format KFIs either need a serious rethink or to be abolished as part of the Financial Advice Market Review.
Key features illustrations are meant to enable people to compare charges between different products so that they can decide which one to purchase. However, after years of changing regulation that objective has been lost and they are now so complicated they are very difficult for clients to understand.
In June 2015, the FCA published a Smarter Consumer Communications Discussion Paper which acknowledged that consumers’ ability to make informed decisions is often impeded by:
regulatory disclosure material that does not provide consumers with the information they need in an accessible and understandable format
information overload and excessive use of financial and legal language that stops consumers from engaging with information
Disappointingly, the FAMR in March 2016 then just focused on suitability reports, noting that there is scope to improve the quality of, and shorten the time spent on, suitability reports and make them more accessible for consumers.
This was a welcome step but does not go far enough. For the FAMR to achieve anything in this area it needs to un-pick all the pieces of information and documentation people receive during the sales process and work out what people really need to know.
Billy Mackay, marketing director at AJ Bell, comments:
“As an indicator of the impact of charges, KFIs are the worst possible example of information over load, often running to 10 pages or more of impenetrable numbers. In terms of demonstrating what you might get back from an investment - the only thing you can guarantee in a point of sale key features illustration is that the customer will not receive what the illustration says.
“We’d like to see the scope of the FAMR extended to ensure that KFIs are reviewed alongside suitability reports. Any replacement must involve a much simpler set of product features and costs outlined in a manner that the ordinary person in the street will have a fighting chance of understanding.
“FAMR should be an opportunity to improve access to financial advice in the UK and deliver better outcome to consumers. Unfortunately, as it currently stands the FAMR is a generic set of observations with very few clear actions that are going to help achieve those objectives.
“Expanding the review of suitability reports to encompass key features illustrations and finding a better way of helping people compare costs and charges more accurately would be real progress.”