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FSA should figure it out
There has been much speculation that the retail distribution review has been designed to deliver a commercial advantage to the banks.
The theory is augmented by the majority of FSA directors having arrived from the banking sector and fortified by comments made by FSA director Dr Thomas Huertas in 2007, when addressing the Institute of Economic Affairs’ 10th Anniversary Conference. He stated: “Commission-based distribution arrangements tend to lead to conflicts of interest and may result in misselling…how do we solve this conundrum? We are genuinely interested in working with banks to find a way to do so.”
A point repeatedly made is that bancassurance is all about hitting targets, cross-selling products and maximising sales. We read reports concerning bank advice which is light on benefits and heavy on commission. We read about high-risk funds being marketed to risk-averse pensioners. We read confessions from exbank staff who claim that the never-ending push for sales forced them into being salespeople.
Is this what our society deserves? Is this what the FSA wants? Does it believe that the numerous financial gaps can be bridged by the bancassurance sector?
These are questions that reverberate as we approached the recent submission deadline for the latest RDR consultation paper.
It seems likely that the FSA has a vision where an amalgam of different types of adviser will service the consumer. The Moneymadeclear initiative sets out the nursery-style advice which will point many consumers towards the simplified GCSE package that is likely to be offered by bancassurers. No doubt they will seek to design a process that implies “free advice”. The final rung, degree style services, will be operated primarily by IFAs on some agreed fee basis.
This scenario can be defended on the pretext of expanding access to the masses and assisting in the repair of the industry’s damaged reputation. What seems missing in this equation is an acknowledgement that the disturbing history of bancassurance misadvice will not only continue but will be ratcheted up several notches with the acquiescence of the FSA. The very FSA charged with a statutory duty to protect the consumer.
When we look back the pension and PPI misselling debacles we can see a clear pattern. IFAs enjoy the highest market penetration, 48 per
cent compared with the banks’ 36 per cent while the complaint statistics tell a different story. Under phase two of the pension review banks were responsible for 89 per cent of compensation paid.
Few IFAs have been involved in the PPI debacle and, as the recent FOS complaint statistics showed, the major banks came out poorly once again.
The FOS has confirmed they uphold around 30 per cent of complaints against IFAs compared with 45 per cent against the banks. FSA figures
for the first half of 2009 show that a mere 1.14 per cent of complaint were against IFAs.
Can we expect the FSA to be alert to this? Rather than a scorched earth policy, the FSA should reflect on the facts and seek to increase consumer access to independent financial advice rather than stratify it.
If working with the banks is part of the RDR agenda we can expect more complaints, higher uphold rates and greater consumer press scrutiny. Ultimately, this will eclipse the Northern Rock saga due to the massive consumer detriment. Will this be Hector Sants’ legacy?
Alan Lakey is director of Adviser Alliance and partner at Highclere Financial Services
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Readers' comments (16)
snooks | 17 Mar 2010 2:18 pm
I have seen no rationale from the FSA which would back any assertion that advice or product purchase through a bank is cheaper than advice or product purchase throuh an IFA. Thinking of the cases we have seen banks taking 7% commission on insurance bonds whilst providing really NO financial planning advice would seem to many multiples more than we would charge. Has anyone identified the basis for teh fSA's assuming that IFA's are more expensive than banks?
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John Reid | 17 Mar 2010 2:30 pm
Very well said !! The FSA even came out with a statement that there will be around £4billion paid out becasue of miss-selling by lenders in the next 5 years. They did not seem to blink when announcing this - are they for real. That is not acceptable. that means there are hundreds of thousands of people being legally conned by lenders and the FSA thinks this is acceptable. The FSA should come down hard on one of these big banks - I dont mean a slap on the wrist and an affordable fine - withdraw their permissions which is exactly what would happen to us if 45% of our business went to complaint. its a joke !! Oh and we pay them to be so flipping irresponsible
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Anonymous | 17 Mar 2010 2:33 pm
Being cynical, is this not what keeps the FSA in business. It is very easy to justify your job if you have a banking sector running amok.
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Alan Clarke | 17 Mar 2010 2:52 pm
The principle of TCF, a principle directive from FSA, and Bancassurance just doesn't fit!
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Michael Fallas | 17 Mar 2010 3:26 pm
Until we rid ourselves of the FSA and its methods and ideas there is little hope of progress for a vibrant and competitive financial advisory sector.
After over 10 years of their regulation we should by now have a vibrant and competitive market but it is far from any of that thanks to the FSA.
Withs costs increasing every year few will be able to afford to pay for it.
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Adam Bell | 17 Mar 2010 3:41 pm
Whenever I've responded to an FSA (or PIA or SIB) consultation on the future of financial advice, I've always highlighted the fact that the vast majority of problems are caused by bancassurers and tied advice.
If only the regulators would simply allow only IFAs to provide any form of financial advice...........
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Never Too Old To Rock | 17 Mar 2010 3:43 pm
FSA should figure it out!!! can only lead to one thing------Ball of Confusion---The Temptations.
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Anonymous | 17 Mar 2010 3:47 pm
Alan's analysis is exactly right. As matters stand, the banks will receive a clear commercial advantage from RDR.
Wait for the backlash in, say, 2013 when consumers themselves realise what is in store for them.
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Evan Owen | 17 Mar 2010 4:18 pm
If I were a carpenter, sorry regulator... there is no song with regulator in it that I know of.
If I was a regulator and I wanted an easy life with no worries about firms refusing to honour FOS awards, no furious baying mob to contend with, no criticism on blogs like this, no 'legal challenges' to defend...
When I come to think of it the list is endless... anyway, if I was a regulator and I did indeed want an easy life I would get rid of IFAs and let the banks have it all.
There you go, problem solved, headache gone away... ahhh bliss...
WAKE UP!!
What, what, what? Who woke me up?
It was the ghost of regulation future dear regulator, whatever your name may be in ten, twenty or thirty years, the ghost is asking you if the RDR was socially useful, what is your answer? What do you mean you don't care?
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Anonymous | 17 Mar 2010 5:04 pm
The more I hear about the FSA the more frustrated I become. We are easy pickings. We make an error and we are punished in a heavy handed manner but banks are rewarded with quantum easing to take the strain and enable them to amass even greater profits (read bonuses). The FSA have removed all pretence that they are looking after the public by actively discriminating against IFA's, mortgage and insurance brokers in a dis-proportionate manner compared with the banks. We have no voice! They probably don't read these letters and if they do, laugh at them, after all these are just the last thrashings of a dying animal. I remember saying to the head of FIMBRA that upcomming legislation would force IFAs out of the business and the reply was that FIMBRA would rather regulate 20-30 large business and deal with their compliance departments than with thousands of small businesses. QED! will the last IFA leaving the industry please turn off the lights and pay all the compensation due. Post note! The banks will willingly pay all the regulation costs as they will have all the income from financial product sales ... Oh! and at higher commission rates because they control all product distribution and will call the shots!!!!
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