“A British government-sponsored review called for a big shake-up of the country’s long-term savings industry, saying investment products for consumers should be cheaper and easier to understand,” writes Sara Calian in today’s Wall Street Journal.

“The recommendations of the report are aimed at solving a problem shared by other big European countries: How to encourage people to save more for their retirements rather than relying on government pensions, which are unlikely to suffice for most retirees?”

“The long-awaited report by Ron Sandler, a former chief executive of Lloyd’s of London, calls for life insurers and other providers of investment funds to offer simple products with maximum 1% annual management fees. The products would include mutual funds, pensions and ‘with-profits’ insurance policies — long-term policies that offer policyholders an element of guaranteed investment return. There would be no initial charge for buying the products and they would carry a maximum 1% annual fee, although that ceiling would be subject to review.”

“The proposals would cut into profit margins for insurers, analysts said, but would be less harmful to the industry than some industry executives had feared. The proposals will lead to higher overall industry sales and favor larger insurers such as Prudential PLC and Aviva PLC, formerly known as CGNU, which are already efficient and able to more easily gain economies of scale, some analysts said.”

“The report said existing products are so complicated and expensive that they deter people from saving enough.”

” ‘It is of fundamental, and growing, public importance that Britain should have a savings industry that is both efficient and widely trusted,’ Mr. Sandler wrote. An endorsement of the report by the British Treasury suggests that many of the recommendations will be put into effect. ‘If we can produce simpler, safer products that consumers can understand and that are economic for providers to sell, we will be able to boost the level of saving,’ said Ruth Kelly, financial secretary to the Treasury.”

“The report also calls for new terminology for Britain’s many ‘independent financial advisers,’ who counsel customers on which financial products to buy. It recommends that only advisers who aren’t paid by the providers of these products could call themselves independent. ‘Payment for advice could still be contingent on a sale, as commission is today, but it would have to be negotiated between the adviser and the consumer, not the adviser and the product provider,’ the report said. That change is aimed at eliminating incentives for advisers to recommend only funds that offer a hefty commission to advisers.”