FSA to adopt lower projection rates for investment returns

The FSA is to adopt lower projection rates for investment returns from 2014 following an industry-wide consultation, in a move to prevent investors from being misled.

The regulator claims many respondents to its consultation paper were unhappy to lower the the intermediate projection rate, based on an asset mix of 67 per cent equities and 33 per cent bond investments.

Earlier this year, the FSA consulted on the reduction of the intermediate rate based on research by PricewaterhouseCoopers.

“We know that a number of respondents are unhappy with our proposed intermediate rate of 5 per cent. However we of not believe that any of the arguments offered for a higher rate are sufficiently compelling to change our view that we should set a rate at the bottom end of the range quoted by PwC, as all of the risk they identify are on the downside,” reports the regulator.

The FSA claims very few respondents had addressed the to consumer angle of its cost-benefit analysis, with those who had bothered arguing that lower rates would lead consumers to believe that investment did not represent good value and lead them to invest in products not covered by the rules.

“We believe that consumers should receive a realistic idea of what they may get back before they decided to invest, and do not accept that lower projection rates will significantly increase the probability of unsuitable investment being sold,” it adds.

“Our suitability rules will help to deal with the danger that consumers will be attracted by other products that give the appearance of better performance.”

The FSA received 33 responses to its consultation, which represents the first time since 2007 that the rate has been changed.