This note is only concerned with FSA terminology on this website.
The number of references produced by a search on the FSA's website is given in brackets. This includes similar words. For example entering "consumer" brings up 6220 enteries which includes "consumers" "consume", "consuming". Care needs to be taken to search on consecutive words such as "help retail consumers achieve a fair deal" - by including the quotation marks.
The FSA is financed by the industry which it regulates. It therefore helps the industry make: a) sales and b) charges. FSA terminology reflects these priorities. It does not define exactly what it means by "a fair deal", but "helping retail consumers achieve a fair deal" is good for sales. FSA writers seem to be required to follow various precepts, especially: a) claim the moral high ground, b) keep it vague, c) proliferate.
appropriate (4361)
An example of claiming the moral high ground, vagueness and even proliferation is "the protection of investors" in the Financial Services Act (1986) which changes to "the protection of consumers" in the Financial Services and Markets Act (2000), more specifically "the appropriate degree of protection". So that the FSA says:
"The FSA has a duty to provide the appropriate degree of consumer protection."
The word "appropriate" was inserted in the Financial Services and Markets Act to mean that different kinds of consumer - such as fund managers using the services of stockbrokers - need different degrees of protection. But "appropriate degree of protection" also means "not full protection". This seems unfortunate especially because of the caveat emptor clause in the Act.
capable and confident consumers (70)
"Capable and confident" (97) is most often used to describe "consumers".
caveat emptor (44)
According to the FSA there is "consumer responsibility for their own decisions" (7) in the Financial Services and Markets Act (2000).
"5 (2) (d) the general principle that consumers should take responsibility for their decisions."
This is very one-sided. The Act does not say that the FSA and the industry should be "responsible for their own decisions" - only "consumers". x
Sir Howard Davies referred to this as "the caveat emptor - beware of the dog - clause" x. But surely "responsible" is not quite the same as "beware"?
In its literature the FSA says that "consumers" needed to be: "aware", "beware", "educated", "informed" and "responsible". It issues numerous "alerts" and leaflets to promote "consumer awareness" (232) and "consumer understanding" (441).
charge (2175)
The FSA says that charges "represent the price the company charges for the management of the consumer's investment". x They also have to pay for selling the "product" and for company profits if any.
"Investment products" (596) have a variety of charges, especially the annual management charge (54) sometimes referred to as "the annual charge" (109). Fitzrovia says:
"Descriptions of the annual management charge as "the annual charge" or "annual charges" are a cause for concern. Many investors are currently making investment decisions under the impression that the management charge is the only annual charge."
These charges are an example of proliferation. I have so far found or come across: charges and adjustments (6), capital charge (175), charges and commission (14), charges and costs (20), charges and expenses (124), charges and fees (16), commission and charges (30), contract charge (10), costs and charges (53), establishment charge (4), entry charge (2), exit charge (66), expenses and charges (25), fees and charges (52), fund management charge (20), handling charge (28), hidden charge (4), initial charge (80), investment charge (26), management charge (131), monthly policy charge (4), periodic charge (27), preliminary charge (35), product charge (63), redemption charge (57), service charge (103), surrender charge (10), transfer charge (8), withdrawal charge (16).
In addition to the above charges, mentioned or discussed on this website are various: adjustments, costs, deductions, expenses, fees, levies, reductions. Doing a search on these quantities such as "fees" below, it can be seen that they do not relate specifically to investment "products" like charges.
clear, fair and not misleading (369)
The FSA applies this expression to all kinds of information. Equitable Life policyholders complain that the FSA provided misleading information. x
consultation (2949)It seems very democratic for the FSA to consult and then follow the wishes of "most respondents" (207). But it is then following the wishes of the industry, because most respondents are from the industry. An example on this website was the consultation whether to permit expenses to be taken out of capital:
"The eleven responses to CP 14 were overwhelmingly in favour of the proposal to allow fund managers to charge expenses to capital in whatever proportion they regard as appropriate ... The main area of disagreement was the need for a meeting of holders to give permission to the manager to change the way expenses are charged. x
consumer (6220)
Investors (1843) (and savers (2494) apparently to a lesser extent) are constantly referred to by the FSA as "consumers". Such as "consumers of precipice bonds" x which might also be called "vampire bonds". When investors cash in their bonds they find their capital has been consumed by the industry. x
"Consumers" can also mean "the public" (1120). For example the Financial Service Act gives the FSA a "public awareness objective" (119), but the FSA sometimes refers to this as its "consumer awareness objective" (4). x x We have: "consumer awareness" (195) and "public awareness" (378), "investor awareness" (22), "saver awareness" (1). Continuing consumer/public:
awareness (323,378), benefits (76,3), choice (104,1), confidence (222,72), detriment (217,0), documents (4,29), education (259,4), empowerment (4,0), information (4209,98), literature (20, 0), policy & research (11, 1), responsibility for their own decisions (7, 0), protection (781, 1), understanding (441,951).
If you ask the FSA why it is describing investors as "consumers", it will probably give the usual response: "Our hands are tied by the Financial Services and Markets Act (2000).". As quoted above under caveat emptor this specifies that "consumers should take responsiblity for their decisions". It also specifies that the FSA must provide "the appropriate degree of protection for consumers" rather than investors. As discussed elsewhere on this website, it should in the first instance be protecting savings and investments with the firms which it regulates rather than savers, investors or consumers. This should be a duty rather than just an "objective".
consumers achieve a fair deal (761)
761 is nearly the same as 739 in "help retail consumers achieve a fair deal" (739). "Consumers achieve a fair deal" is nearly always preceded by "help retail".
deal (3592)
The industry is above all interested in "deals", which means mainly sales.
disclosure (1703) transparency (733)
There are numerous references to the importance of disclosure and good information on the website of the FSA, e.g.: "Disclosure and transparency are crucial to market integrity."; x "seeking to achieve better consumer understanding through improved disclosure"; x "empowering consumers through education and disclosure of information on charges and other key features of financial products."; x "One of the best protections for consumers is information.".
Below the surface the FSA is not so enthusiastic about disclosure. For example fund portfolio turnover is specified as a percentage in the accounts of mutual funds in the US but not in those of unit trusts in the UK, but:
"The FSA will not bring forward proposals to require the disclosure of portfolio turnover." (5.81) x x
Its annual survey of maturity p ayouts and surrender values for with-profits policies x is confidential.
expenses (1112)
In addition to the above charges there are expenses and costs (2935), that is dealing costs. Charges go to the provider, whereas expenses and costs go to other people. Expenses are paid as "fees" discussed below. Dealing costs result from stockbroker's commission, stamp duty, market bid-offer spreads, and perhaps custody fees.
fair (3659)
"Fair" seems to be used with more abstract nouns; fair bonuses: (zero), fair benefits: (zero), fair deal: (1291), fair return: (zero), fair outcomes: (103), fair payouts (zero), fair terms (41), fair treatment: (433).
fair deal (1291)
The FSA says that it helps "consumers" to do "fair deals" which do not happen automatically but have to be "achieved". "Fair deal" is most often used in the expression: "help retail consumers achieve a fair deal" (739).
The exact meaning of "fair deal" is apparently not given on the FSA website such as in its report A fair deal for consumers. x x It should mean getting fair benefits in return for contributions.
fees (1866)
Investment "products" pay various "fees" especially: custodians' fees (6), trustee fees (21), audit fees (57), regulators' fees (15); to custodians, trustees, auditors, regulators; and policy fees (29), product fees (21).
However "fees" on the website of FSA are mainly the fees charged by the FSA itself for regulation, which pay for the FSA. The industry is paying for its own regulation which is self-regulation.
financial industry (62)
The FSA usually uses the term "financial services industry" (1247) rather than "financial industry".
guaranteed (1304)
This has been in the news recently:
"Even the FSA said final salary pensions were ‘guaranteed’. This allowed employers to get away with making the promises they could not keep." x
When asked about this, an FSA spokesman said: "The word 'guaranteed' cannot mean 'guaranteed in all circumstances'." x
help retail consumers achieve a fair deal (739)
The FSA constantly applies this expression to everything it does. See for example Helping retail consumers achieve a fair deal. x This has a section on its "Treating Customers Fairly" (323) campaign which it describes as "business as usual" in:
"FSA tells industry that Treating Customers Fairly must be 'business as usual'" x
the industry (1424)
The industry regulated by the FSA.
information (7237)
Most information is "consumer information" (4209). The businessman Richard Branson said: "The secret of success in business is information.". But most people are not businessmen.
From 1st January 2005, if you require information from the FSA, judging from my experience you should not just ask for it, but make a "Freedom of Information: 'Right to Know' request".
informed choice (172), informed consumers (258)
Please click on: x
outcomes (1828)
The new "principles-based regulation" has "a focus on outcomes". x The Treating Customers Fairly initiative has six "consumer outcomes". x
"products" (3828)
There are many different kinds of "product", which the Sandler Review describes as "product proliferation". There are for example: collective investment products (8), decumulation products (61), externally manufactured products (2), guaranteed products (20), in-house products (2), investment products (596), packaged products (409), pension products (179), personal pension products (18), product manufacture (25), product regulation (138), regulated products (78), Sandler products (55), savings products (127), stakeholder pension products (19), stakeholder products (257).
"Saving" means "set aside for future use". Savers retain control of their cash, rather than swapping the cash for something else like investors. "Investing" means "apply for profit". To the FSA the terms "investment product" and "savings product" (as in "long-term savings product" x) seem to be interchangeable.
The term "product" causes confusion. The situation can be summarised using only "services", "savings accounts" and "investment contracts":
| services | savings accounts |
investment contracts | |
|---|---|---|---|
| providers provide | yes | yes | yes |
| savers save in | no | yes | no |
| investors invest in | no | no | yes |
| consumers consume | yes | no | yes * |
| * According to the FSA. E.g.: "retail consumers of investment products" x | |||
protection (3373)
Savings and investments need protecting in the first instance rather than consumers and investors. They need protecting by the regulator, not from stock market fluctuations, but especially from excessive and hidden charges.
A search on "protection of savings" and "protection of investments" on the website of the FSA brings up zero references, "Protection of consumers" brings up 847 references. "Protection of investments" under Google brings up 130,000 references. "Protection of savings" brings up 820 references.
providers (4590)
"Providers" is more frequent than "financial services industry" (1247). According to the FSA providers, which the FSA also calls "product providers" (730), "service providers" (623) or "product manufacturers" (21), provide products and services which are consumed by consumers. It seems misleading to say "providers provide products" which "consumers consume" because, as mentioned above, nothing has been manufactured.
market (4745)
"Market" often relates to "consumer" such as "consumer market confidence" (37) or it goes together with consumers: "consumers and/or markets" (124), "markets and/or consumers" (60). "Consumers" are "a market participant".
retail (2243)
The industry divides into "retail" and "wholesale" (619). Almost half of the retail side are "retail consumers" (1036) followed by retail markets (292), retail investments (251), retail investors (194), retail firms (82), retail intermediaries (68), retail savers (including saving) (56), retail sales (35), retail advice (3), retail protection (2). There is only one "wholesale consumer" and no "wholesale sales", but 256 "wholesale markets" and 44 "wholesale firms". There were 49 "retail-and-wholesale" and 81 "wholesale-and-retail".
shop around (522)
Investing is referred to as "shopping" (304) on the website of FSA. In order to "get the best deal" (21), the FSA encourages "consumers" to "shop around" with tips such as: "Take time to read through all the product literature." "Take the time to compare it with other deals .. ". x "Consumers" "get the best deal" by "looking at costs and charges".
The present website is particularly concerned about the lack of warning about hidden charges. These are part of "the detailed workings under the bonnet":
"Just like buying other consumer products, you need to shop around. Like buying a car or a washing machine, you don't have to get to grips with the detailed workings under the bonnet or inside the case." x
"Product literature" (81) is a euphemism for sales documents, which tend to be misleading. For example the demise of Equitable life had more to do with wrong documents than people not reading them:
"The actuaries were afraid that anything that was said about reserves, complaints, GAR problems, litigation etc would be unpopular with the sales force. It would also have lowered ELAS's place in the performance tables." x
There is extensive information about "shopping around" on the website of the FSA:
"The FSA launches new Shop Around web pages for consumers.
Shopping plays a big role in most peoples lives around this time of year, as millions of Britons hunt around for last minute Christmas bargains." x
"Buying a financial product is no different to buying a TV, car or holiday. ..Don't feel silly or stupid if you don't understand straight away. ..
For more information on shopping around pick up a free copy of the FSAs guide, It pays to shop around which is available in main high street post offices or ring the FSA Consumer Helpline on 0845 606 1234." x
Therefore according to the FSA "achieving a fair deal for consumers" does not depend on "the workings under the bonnet". It depends on "consumers shopping around". "Helping retail consumers achieve a fair deal" means especially "helping consumers to shop around".
suitability (742)
Judging from my own limited experience of financial advisers the "know your customer rule" (156) should be replaced by a "don't know your customer rule" or "confidentiality rule". "Know your customer" just seems to be prying in the hope of making sales. The FSA often stresses suitability when it should arguably be stressing investment performance. For example, in evidence to the Treasury Select Committee, Sir Howard Davies said:
"The whole learning experience of the last few years has taught us I think, that suitability is at the core of the problem which investors face, whether this is a suitable product for you." (184) x
"The core of the problem which investors face" is making investments which have good investment performance. "Consumers face" (68) is much more frequent than "investors face" (7) on the website of the FSA, such as: "consumers facing mortgage endowment problems", "consumers faced with difficult and sometimes bewildering choices".
What interests the FSA
information (7237), consumers (6220), markets (4745), providers (4590),
appropriate (4361), deals (3592), protection (3373), "products" (2977),
consultation (2949), retail (2243), charges (2175), fees (1866),
outcomes (1838), disclosure (1703), the industry (1424),
guaranteed (1304).
Stephen Wynn,
July 2005