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By Alice Ross
Published: June 6 2011 22:59 | Last updated: June 6 2011 22:59
Investment products described as “guaranteed”, “protected” or “secure” may have to carry an explanation stating exactly what these terms mean, in the latest warning from the Financial Services Authority that financial companies are not properly advertising risk to consumers.
So-called structured products, which offer people exposure to the stock market with some level of protection, were being promoted “without any clear and adequate justification for the descriptions used”, the regulator said in a quarterly consultation paper on Monday. It has proposed introducing guidelines that would force financial services companies to explain the use of terms such as “guaranteed” in advertisements or fact sheets.
EDITOR’S CHOICE
Analysis: Finance – Shadow boxes – Feb-02
Tony Jackson: Cat-and-mouse game – Jan-30
Lex: Financial Crisis Inquiry Commission – Jan-27
Goldman president warns on bank rules – Jan-26
Reforms need to nurture capital markets – Jan-26
Insight: Road map that opens up shadow banking – Nov-18
Structured products are increasingly being marketed by banks and wealth managers to consumers who are tempted by the headline rates on offer at a time when returns on cash are still close to zero.
Typical products will lock up capital for five years and offer investors a proportion of any return on the stock market over that period. But many “guaranteed” products in fact only protect capital if the stock market does not fall below a certain level over a certain period of time.
The regulator has had the investment products on its radar after a review in 2009 of products backed by Lehman Brothers found that sales advice had been either unclear or misleading in two-thirds of cases.
But sales of structured products have shot up since the credit crunch, with a 48 per cent rise in new sales in 2009 compared with 2008, according to the website Structuredretailproducts.com.
The UK retail market was worth £52bn at the end of 2010, up from £46bn the previous year. The FSA said it had taken steps to introduce the new rules after evidence that its current guidelines, introduced in 2001, were not working.
“We already have a rule that says firms have to be fair, clear and not misleading – but in a lot of cases we’re finding that’s not working,” the FSA said.
Structured products have been behind some of the largest fines imposed by the regulator in recent months, including a £1.4m fine on Norwich & Peterborough Building Society in April for mis-selling the investments and a £700,000 fine on RSM Tenon last year.
Some independent financial advisers have also faced individual fines for failing to explain the risks of the products properly. A consultation on the proposal is open to August 6.
The FSA expects to publish the results of a separate investigation into how structured products are sold and marketed to consumers later this year, which is expected to clamp down on sales practices further.
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Small Business Job Offer: No Benefits
One unappealing option for small businesses nowadays is providing benefits to full-time employees. Hence, hiring part-timers is now becoming a valuable consideration among them.
The main reason is cost-control. Benefits provided to full-time employees greatly affects small businesses’ profit and maintenance fund. In reality, employers actually add around 20-30% on top a full-time employee’s salary. Shaw Capital Management figures these percentages cover up for tax payments, health care, wellness programs (for some businesses) and retirement benefits. Additionally, many small businesses find health care costs the most expensive benefit that they give to their regular employees.
Per statistics, there was a 12 to 15 percent annual increase in health care cost in the last four years. Although the Obama administration passed a health care reform last year, the implementation requires employers to wait until 2014. Thus, businesses look into available tax credits that could help them deal with increasing cost of health insurance. And if job seekers will demand for a full package, they tend to get rejected and soon lose their charisma in the job market.
In fact, because the high unemployment rate does not seem to find improvement in the coming years, more and more workers are willing to get employed even without benefits. This untoward phenomenon appear to become an opportunity for small businesses to continue their goal of controlling costs. But at the same time, they see themselves charitable enough to offer help to those laid-off workers.
There is a dilemma among employers, though. Much as they want to provide opportunities to part-time job seekers and gain help and profit from them, small business owners still do not want to compromise the loyalty they are getting from their full-time employees. Skyrocketing health care benefits raise issues among business owners on whether or not they should completely drop the coverage or mandate an increase in the percent employees has to pay for it. Shaw Capital Management suggested that both options might result in angered workers, and employers might lose “loyal and excellent” employees. It can not be denied that there are workers who “take ownership of their job” and so become more sufficient and efficient for the business. The cost of hiring two part-time employees instead of going for just one full-time but dedicated employee seem a lot more expensive, Shaw capital management warning noted. Small businesses are still not quick to pull the trigger in replacing full-time employees with part-time and contract workers.
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