With-profits small print risk

By HELEN MONKS
Updated:

 

MOST investors who take out with-profits savings products have only a basic understanding of how they work, according to new research from City watchdog the Financial Services Authority.

Despite this ignorance, around £12bn has been ploughed into the products.

Many consumers are attracted to with-profits because they are seen as low risk. They are designed to buffer customers from the ups and downs of the stock market, and offer a system of bonuses.

But the FSA says few policyholders appreciate the risk involved in with-profits investments and have a limited awareness of the exit penalties carried by the products, as few people bother to read the small print.

The latest research is part of the FSA's drive to make with-profits more understandable. The new discussion paper that includes the research also suggests that consumers should be given different levels of information, depending on how financially aware they are.

The regulator warns there is a risk of 'information overload' and proposes that giving policyholders large amounts of information in one block could result in none of it being read and consumers making the wrong financial decisions.

John Tiner, FSA managing director, says: 'The latest research confirms that there is a pressing need to raise the quality, but not necessarily the quantity, of information offered to consumers before they buy a with-profits product and then throughout the life of their investment.'

The research paper is available on the FSA website.

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