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According to a study conducted by FCA, bank should give unbiased advice to offer a hand of help to less “savvy” clients.
In a study published previous week, the regulator made a detailed analysis of how price discrimination affects particular groups of customers.
FCA study looked into firms that charge different prices to different types of customers, which leads to some groups paying high mark-ups and cross-subsidising others.
The regulators conducting a research warned that some customers might not be aware they are paying a higher mark-up saying that banks could interfere in these cases giving piece of advice from staff with “well-aligned incentives.”
FCA study says: “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 study did not check whether the bank charges for those products were explicit enough or whether the customers were provided with an unhindered access to advice.
However, the study has shown that price discrimination does not authorise any regulatory interference because frequently it nothing but a result of the market competition.
The regulator says: “Badly designed or inappropriate regulatory interventions can lead to undesired or unintended consequences for consumers and competition.”
In the advice market, cross-subsidy might arise between high and low profile customers, but also between customers who seek to buy a product after free reviews and those who do not.
In a newsletter before the RDR, the regulator remarked upon the firms delivering both products and advice saying that such strategy was cross-subsidising the total expenditure of delivering advice to make advice charges turn out artificially low.
The RDR needs major firms that provide both products and advice to establish such advice charges that would be “reasonably representative” of the services offered, keeping firms cross-subsidising advice charges from profiting from other parts of the business.