FSA to consult on lowering investment projection rates
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The Financial Services Authority (FSA) is to consult on measures ensuring investors receive a realistic indication of potential future returns and charges from providers.
New rules will strengthen existing regulation, compelling providers to always use appropriate rates of return.
The regulator has made the move after discovering that providers often fail to comply with current rules, whereby they must project on three different rates, revising downwards where a product is unlikely to achieve these.
Sheila Nicoll, director of conduct policy at the FSA, says: “Investors need to be able to trust information they receive and any suggestion as to how their investment might grow in future must not be misleading.
“We are proposing lower growth rates which firms may use but we are reinforcing the fact that these are maximum levels.
“Providers and advisers need to take a long, hard look at the rates they use, taking account of the underlying assets they are dealing with.”
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Readers' comments (1)
Stanley Kirk | 31 May 2012 3:04 pm
The FSA is worryingly off target on this and apparently not listening. Projections for financial planning are now almost entirely done by financial planning software - normally using stochastic analysis (Monte Carlo simulation) showing a range of outcomes, based on historical performance, from different asset classes. These tools are not regulated but are excellent for educating clients. Provider illustrations are not used as projections but rather are a cost comparison tool because they are net of own charges - don't mess with the cost comparison tool! Also, arguably, the time to reduce growth rates was 10 years or more ago when markets were high and future returns were unlikely to be as good - now that many markets are lower (apart from bonds) the chances of higher returns have actually improved! See various research papers which show the effect of performance on when you invested.
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