Newspaper article The Evening Standard (London, England)

Simple Consequences of the Sandler Squeeze

Newspaper article The Evening Standard (London, England)

Simple Consequences of the Sandler Squeeze

Article excerpt


A FEW years ago the Treasury decided, courtesy of the Cruickshank inquiry, that the high profits generated from small business banking services proved there was an absence of competition and that the market needed to be reformed.

Today the Treasury, via Ron Sandler's inquiry into the retail savings market, has decided that the high and increasing cost structures of insurance companies prove that the market is uncompetitive and needs to be reformed.

Too much profit or too much cost, the Treasury can have it both ways. And, interestingly, in both cases its solution is the same: competition must be improved and the way to do it is by imposing strict price controls on the product.

You are forgiven for being slightly confused at this point because if price controls were the universal driver of efficiency, Soviet Russia would have been the world's most vibrant economy. Perhaps the Treasury thinks it was.

But one can see what Sandler is driving at. He says the retail savings market for investment products does not work properly, first because the products are so complicated that they cannot easily be compared to see which provides best value, and second because those who could help customers the financial advisers - are in the pockets of the product providers as they live on the commissions they get from the insurance companies.

No one really gets what they want.

Customers don't like the products and suppliers don't make adequate profits.

But if most people would agree with the diagnosis, many will baulk at the solution. Sandler wants price-capped, simple products so easy to understand that they can be sold without advice and cashed in at minimal cost if the customer later wants something else. Where customers need advice on morecomplicated products, he wants those who call themselves independent advisers to get their money openly from the customer, not covertly from the product provider, and to be much better qualified. …

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