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The regulator needs to rethink its capital adequacy plans.
Fair for all
Sheriar Bradbury IFA View
Can the FSA provide evidence that it abides by the same principles of treating customers fairly as it expects advisers to adhere to? Is the FSA treating customers fairly when it imposes rules that put new model adviser firms at risk?
The recent FSA announcement on changes to capital adequacy requirements spurred me to consider this point. Why are financial services companies required to keep greater reserves than normal trading companies?
When a firm goes into administration or liquidation, it is protection that customers need most from the FSA but we have not yet heard what framework the FSA has in place to ensure this happens. Measures are needed to notify these orphaned clients of proceedings and help them in finding a new adviser. Clients need reassurance that their policies are protected and that investments will be if their adviser going into administration, liquidation or simply ceases trading.
The FSA also needs a system to act as a buffer to ensure these funds are ringfenced. Under the current proposals, it is creditors such as landlords and insurers that will be thanking the FSA for this pool of money and clients will be left high and dry. The FSA is meant to be a protector of the public with one of its objectives being helping retail consumers achieve a fair deal, yet it is hard to see how these proposals are fulfilling this criterion. These measures for capital adequacy are not fit for purpose and the FSA needs to rethink.
Another issue that advisers should be raising is the monitoring of capital adequacy. If these measures are coming into effect, more double-checking and even spot checks need to be carried out to ensure it is not just the good guys that are paying the onerous amounts into a capital adequacy pot.
The FSA is also guilty of handing the burden of failing firms on to the Financial Services Compensation Scheme rather than dealing with it itself. If firms fail, their models are clearly not working, there is no point in flogging a dead horse back to life if it is not geared to the changing shape of the industry.
The FSA should be promoting a forward-thinking adviser firm model that caters to client services and invests in back-office infrastructure and support ensuring clients get the best possible service and experience. It is these people that the FSA is penalising and this goes against the core principles of TCF.
Finally, we have to consider it does not bode well for the industry if clients are just left in the lurch by failing firms. The financial services industry is becoming a profession and we need to uphold standards. As advisers, we have been held to account but it is time the FSA is held likewise. I would urge the FSA to take responsibility, making sure customers really are treated fairly.
Sheriar Bradbury is managing director of Bradbury Hamilton
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