In 2001 the United Kingdom

United Kingdom

The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 Government asked Ron Sandler

Ron Sandler

-Early life:Sandler was born in Bulawayo, Southern Rhodesia in 1952 and has an undergraduate degree in engineering from Queens' College, Cambridge and an MBA from Stanford University.-Career in the financial sector:...

 to:

• Identify the competitive forces driving the retail financial services industry
  Financial services
  Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...
  
  ; and
• Suggest policy responses to ensure that customers are well served.

Proposals

The Sandler report suggested that there are three main reasons why the industry seemed to be failing to serve large portions of the population. The government is particularly worried about so called savings gap, i.e. the failure to provide adequate funds for their retirement. The report cited:

• The complexity and opacity of many financial services;
• The failure of the industry to attract and engage with the majority of lower- and middle – income consumers;
• The inability of consumers to drive the market.

Ron Sandler suggested the development a suite of simple, low-cost, risk controlled products. The name “Stakeholder” was given to those products, although they are still referred to as Sandler products.
The maximum level of charge permitted per annum for the investment products was set at 1.5% for the first 10 years of the life of the product and 1% thereafter. For stakeholder pensions arranged prior to 6 April 2005, charges are capped at 1% throughout.

The suite of stakeholder products includes five types of products:

• A cash deposit product, similar to a cash ISA
  Individual Savings Account
  An Individual Savings Account is a financial product available to residents in the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status. Money is contributed from after tax income and not subjected to income tax or capital gains tax within a holding...
  
  . The interest rate
  Interest rate
  An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
  
   will be within 1% of the Bank Of England base rate, and the minimum deposit is no more than £10;
• A medium-term investment product, related to collective investment schemes such as unit trust
  Unit trust
  A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
  
  s and OEICs;
• A smoothed investment fund
  Collective investment scheme
  A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
  
   ( a with-profits-type fund);
• The stakeholder pension;
• The Child Trust Fund
  Child Trust Fund
  A Child Trust Fund is a long-term savings or investment account for children in the United Kingdom. New accounts cannot be created but existing accounts can receive new money...
  
  .

Controlling the risk is also important. This is achieved by limiting the proportion of shares in the stakeholder unit-linked

Unitised insurance fund

Unitised insurance funds or unit-linked insurance funds are a form of collective investment offered through life assurance policies.An insurance company's contract may offer a choice of unit-linked funds to invest in. Insurers that offer these contracts are mainly found in the UK and British Isles...

and with-profit products to 60% of the funds. The reminder must be invested in fixed-interest securities and cash.
A simplified selling model applies to these products, with the exception of the smoothed investment. The rules are included in the Conduct of Business sourcebook, and can be summarised as follows:

• The adviser must explain the nature of stakeholder products and must make clear that only basic advice will be given ;
• The sale process will be based on a series of short scripted questions in plain language;
• The assessment of suitability for a product will be based only on information disclosed by the questions and will not involve a detailed assessment of the customer’s needs but:
  • The customer’s savings and investment objectives should be ascertained;
  • The customer’s willingness to accept risk should be ascertained, as this may determine which product might be suitable.

The process must be terminated at any stage if:

• The customer request it;
• The adviser believes there is no likelihood of any stakeholder products being suitable; or
• It appears that the customer is unlikely to be able to afford a stakeholder product

• An assessment should be made of the customer’s other financial needs and priorities, and if necessary the customer should be clearly informed of the desirability of meeting the other priorities first:

• If the customer appears to be “significantly” in debt, a stronger warning should be given ;

• Additional rules apply to stakeholder pensions, which should not be recommended if the adviser believes there are better options for the customer.