FSA analysis fails to value role of advisers
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The FSA’s cost-benefit analysis of the RDR is “dubious” as it does not measure the detriment caused by a decline in advice, according to Lansons public affairs and regulatory consulting director Richard Hobbs.
FSA chief executive Hector Sants wrote to the Treasury select committee in December, outlining the regulator’s rationale for the RDR. Sants cites an annual consumer detriment cost of £223m from previous misselling reviews and estimates that the cost of actual consumer detriment due to misselling is between £400m and £600m annually.
The letter quotes the implementation costs of the RDR to be between £1.4bn and £1.7bn over five years.
Hobbs argues the cost-benefit analysis does not take into account the detriment resulting from advisers leaving the industry due to RDR requirements, nor does it factor in the role advisers play in closing the savings and protection gap.
He says: “What Sants’ letter does not attempt to measure is the detriment that arises from the savings gap and the protection gap. We also do not know how much extra detriment will be caused by the amount of advice declining, but we know that it exists.
“When you add that into the equation, the RDR cost-benefit analysis becomes a much more dubious proposition.”
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Readers' comments (23)
Chris F | 6 Jan 2011 1:04 pm
From the article:
"Sants cites an annual consumer detriment cost of £223m from previous misselling reviews and estimates that the cost of actual consumer detriment due to misselling is between £400m and £600m annually"
How was this arrived at? How is it attributed? Is it £200m from small complaints and £23m from large? Is it as a result of bank advice? IFA advice?
Would the advice have been different had the advisers concerned been level 4, or was the advice bad because it was driven by greed?
Would the advice have been different had the client paid a fee from the product, instead of paying the commission from the product (same thing, different name).
I bet they not only don't know the answers to this, but that the answers would show the whole of RDR to be a red herring.
I bet that, if they treated the complaints against the selling machines that are the banks seriously then most of this wouldn't have happened.
I bet that, had the FSA taken two of its reasons for existing seriously - consumer education and maintaining confidence in the financial system - then most of the above wouldn't have happened.
What, incidentally, is the cost of running the FSA? Who pays this cost? The consumer.
Has anybody thought to run a cost benefit analysis along the same woolly, predetermined, unscientific lines against the FSA?
I bet that they haven't.
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Pissed Off IFA | 6 Jan 2011 1:06 pm
Pity someone does not do a cost-benefit analysis for the FSA, I guess that this would not bode well for FSA. How much of "cost detriment to the consumer" was down to the collapse of the banks which by and large was down to the failure of the FSA to down their job properly. FSA were too busy giving IFAs a hard time. Perhaps, the remit for FSA is to reduce the IFA market and then concretate on getting banks to give the right advice.
Dream on!
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Simon Mansell | 6 Jan 2011 1:23 pm
Richard Hobbs joins a growing band of professionals who have raised grave concerns over the The FSA RDR. In the face of these comments all Sants can do is refer to an Australian survey of three firms.
The FSA have been challenged and they they have failed to meet the challenge. Now its time to see if we live in a democracy where the executive is answerable to parliment?
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@Pissed Off IFA | 6 Jan 2011 1:06 pm | 6 Jan 2011 1:26 pm
Wastn't it a FSA cost of £17m to get 6 insider traders. Now thats what I call value for money - not! Neally as much as the FSA £20m bonus in the years they failed to regulate the banks!
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toddy | 6 Jan 2011 1:28 pm
As most of the mis-selling is being done by the banks' advisers and not by independent advisers, their cost analysis has to include the value of independent advisers. If not they are showing again how incompetent they are and government and others have to stop them or at least point this out and ask the Mr himself to go back to the drawingboard.
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Voice of reason? | 6 Jan 2011 1:33 pm
Part of me thinks that it is pretty damning of the regulatory system that some 24 years after the first Financial Services Act that the regulator considers mis-selling to cost consumers between £400m and £600m annually. (Why the £200m spread)
Part of me thinks that given the general negativity from the IFA community about TCF, RDR and any time MM announces a fine for industry misbehaviour is it any wonder that the regulator does not want to engage with IFAs?
As an industry and as IFAs we need to engage posititvely with the regulator, get our voices heard and stop bleating and sniping from the sidelines.
The regulator is not going to step back from level 4 so get on and do it and at the same time systematically maintain improve and broaden your knowledge experience and skills via targetted and quality CPD.
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Alan Lakey | 6 Jan 2011 1:34 pm
If we are dealing with facts then we need to reflect on 89% of the pension mis-selling compensation being paid by banks and 63% of the pension complaints escalated to the FOS being down to the banks.
As IFAs have over 80% of the pension market and the banks have only 6% this throws into stark contrast where the detriment arises.
As well as shaming the dubious cost-benefit analysis calculations these facts condemn the entire rationale of the RDR.
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CONFFA | 6 Jan 2011 1:42 pm
The two comments above concisely reflect the position re the FSA, who are most definitely 'not fit for purpose' (and probably never were, either).
The sooner that someone does a CBA on the FSA the better. Let IFAs not only survive, but thrive, rather than be dragged into the gutter at the slightest suspicion that 'an adviser' (from a bank, likely) has done something wrong such that the whole sector needs a full and very costly investigation.
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Ian | 6 Jan 2011 1:47 pm
The compensation is normally due to failed badly marketed products. I would have thought the FSA would approve these products first. So the FSA allow bad products to be marketed to clients knowing that there could well be problems??.
Take example of the old Northern Rock 125% mortgages. They allowed that, they allowed self certified mortgages??. These should have been stopped years ago. They blame the advisor for selling a product when in fact the product was the fault not the advisor.
They failed in the policing of banks which as was shown was a far greater risk than for example selling an isa to a client.
There has been no common sense since regulation has been brought in and it has been to the detrement of clients as costs have increased due to the increasing costs.
Banks have unqualified advisors that pose a big risk yet the FSA still allow them to get away with it year after year.
Majority of IFA advisors are well policed via compliance depts/networks.
Tell me another industry where the innocent have to pay for the bad advice by others.
Why should advisors have to pay £500 if a complaint shows it was good advice.
After 22 years of regulation it has not worked and it has shown the FSA to be a complete shambles.
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Fraser Brydon - IFA | 6 Jan 2011 1:58 pm
I fear it's the horse and stable door again, is it too late to realise whilst the concept is good and gets my vote the implimentation is all wrong and conceived by a bunch of ignorant, over paid, under qualified buffoons....
The numbers of IFAs has fallen every year for the last 10 years, this is going to help accelerate the leavers and the losers are at the lower end of the scale whom IFA help every day with general advice at their own expense, it's cold caring and being professional....what would the FSA know about that....
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