Banks could give unbiased advice to help less “savvy” customers, according to FCA research.
In a research paper published last week, the regulator looked at how particular groups of consumers are affected by price discrimination in financial services.
It examines firms charging different prices to different individuals, resulting in some groups paying high mark-ups and cross-subsidising others.
The authors warn some consumers may not realise they are paying a higher mark-up, and argues banks could step in in these cases to provide advice from staff with “well-aligned incentives.”
The paper says: “Consumers may be less ‘savvy’ in different ways and sometimes in several ways.
“They may not have clarity regarding their future needs, and may therefore choose unsuitable insurance, savings or mortgage products, or even postpone a decision. If firms use complex pricing or complex terms, then if the costs accrue over time or the costs are hidden and consist in the loss of a possible gain, consumers may be unable to assess the cost of the product or the risks involved.
“In such situations, advice from the bank or building society providing the product may alleviate these problems to some extent, and advice from agents with well-aligned incentives will likely be helpful.”
The research did not examine whether or not bank charges are clear enough for those products or whether access to advice was sufficient.
Overall, the FCA found price discrimination does not necessarily warrant any regulatory intervention because it is often the result of a normal, competitive market.
The regulator says: “Before intervening, it is necessary to carefully identify the problem, as well as identify appropriate solutions.
“Badly designed or inappropriate regulatory interventions can lead to undesired or unintended consequences for consumers and competition.”
In the advice market, cross-subsidy can occur between high and low value clients, but also between clients who chose to purchase a product after free reviews and those who do not.
In a newsletter before the RDR, the regulator expressed concern that firms providing both products and advice were cross-subsidising the total cost of delivering advice to make advice charges appear artificially low.
The RDR requires larger firms that provide products as well as advice to set advice charges that are “reasonably representative” of the services offered, preventing firms cross-subsidising advice charges from profit from other parts of the business.