IRSG report on Packaged Retail Investment Products

Published 31 Jan 2011

This paper responds to the Commission’s PRIPS initiative, concluding that the initiative has the potential to substantially improve the experience of consumers when buying retail financial products.

Across the EU, citizens need to save more, especially for retirement income. The evidence is that many consumers are not comfortable making investment decisions. They must be helped. The Commission’s PRIPS initiative is an important measure which has the potential to give consumers much better outcomes. To succeed, the initiative must cover all substitutable products, regardless of legal form. Rules on disclosure and on the nature and cost of advice and distribution must produce identical outcomes for the consumer. In addition, nothing should be done to damage the welcome diversity of product and distribution methods available to consumers.

The PRIPs initiative should be judged against four criteria:

  • Transparency: The consumer should be made aware of the type of advice they are being offered, the nature of the product, and the costs of the advice and of the product.
  • Simplicity: The products may not be simple but all communication with the consumer should be intelligible and free of technical terminology which they will not easily understand.
  • Choice: Consumers should be made aware of different sources of execution, advice and products. This will require work in addition to that envisaged by the PRIPs regime. Wherever possible, a key outcome of the PRIPs initiative should be to point consumers to competing sources of advice and products.
  • Value: The value of advice is hidden in much of the financial services markets in Europe. In the UK, 50% of people believe advice is free. That is because the cost of advice or distribution is bundled into the product. Consumers therefore do not understand the cost of advice, do not value it and do not understand that the advice market is a market like any other. Without being able to see the cost of the product or the service there can be no competition in the marketplace. And competition can often deliver as much benefit to consumers as regulation.