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Categories:Regulation

Better save than sorry

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When financial services professionals and politicians get together, they talk about regulation, commission, charges and what has gone wrong.

We need to re-examine that debate. The biggest challenge facing our society is a lack of saving for the long term and, in some cases, the short and the medium term.

We have far too much private debt to go along with the public debt and, as a result, aside from those smart enough to have listened to their IFA, the British public have too little put aside.

The reaction of governments in the past has been to cut IFAs out of the picture, designing systems that avoid IFAs, in the mistaken belief that products such as pensions would somehow magically fly of the shelves. We are seeing the consequences of this in dangerously low levels of savings.

We now have a pro-business administration that may be prepared to allow IFAs to shoulder their share of the work to get people saving again - we just need to find the right way in which to frame the argument.

Unfortunately, we do have a bit of an argument about regulation first, because that is part of the reason things have gone wrong.

We have to start asking why it is so much easier to get into debt than to save and invest. Why is a personal loan easier to obtain than, say, an Isa through an independent adviser?

This is not a call for the complete removal of regulation but there needs to be an intelligent look, possibly by independent experts, to see which regulations among the hundreds accumulated in the past 20 years could be disposed of. Which regulations genuinely inform the client or protect them from sharp practices and which are surplus to requirements and provide a barrier to saving and add extra cost to everyone?

As the overall shape of regulation has changed from rules, to principles, to outcomes, presumably before the whole process is repeated, there must be rules left over we do not need.

We have an opportunity with the formation of the new regulator for the retail market, the Financial Conduct Authority, to change things - but the signs are not good. Some people think that if there are more fines then, magically, things will improve.

Regulators need to accept they have created a culture that has damaged consumer confidence and the result is lower savings than ever.
We may even need to return to a few old arguments. In the 1990s, we saw with the misselling scandals the regulator return again and again to blame advisers for the problems.

The regulator was looking in the wrong place. The fault lay with insurers not delivering on their product promises or making wild and unaffordable promises. That is where the regulator should have been looking rather than classifying the problem as part of the advice process and setting the scene for a sort of constant revolution in regulation of advice. The main consequence of this process is that advice got more expensive and fewer people got advice and so saved less.

Genuine misselling among advisers was less widespread than regulators and the media would have you believe.

It is nowhere near a given but future distribution models could see some sort of restricted hybrid coming through in the next year or so. Meanwhile, we are still confronting a reform where the life offices could benefit.

Multi-ties could reduce competition and play into the hands of life offices that still want to control the market and ensure that a restricted list of what could be inferior products gets put in front of the customer.

The argument and the issues have not changed substantially since depolarisation but we are already seeing a host of commentators discussing restriction as if it was the sensible and obvious choice, even though, for many advisers, independence will represent what is best for clients.

The idea of allowing life offices to influence IFA business decisions seems daft. Their track record has not been great. The fact they have hired thousands of people only to let them go again does not exactly instil confidence they can run their own businesses, let alone advise on the business strategy of IFAs.

We are entering an interesting time. We may see some life offices setting up their own direct salesforces but I do not see them taking that level of risk on themselves again. I think they will realise they need IFAs because they remain the most efficient way to find new customers - but for a while they may try to convince themselves otherwise.

The charging reforms will shake things up for while. Relationships may change as the new system beds in and we will see a lot of providers seeking an advantage.

The use of transparent and linked technology can cut through most of the defunct regulation and the key to successful saving is having a client who knows what they are getting, why they are getting it and what it costs, which can be achieved through employing the right technologies.

But the real advantage of technology should rest with IFAs. It should allow them for the first time to properly define the value of the service offered to clients. It should also see life offices compete properly for that business - once they realise IFAs are not going to go away.

If they are clever, regulators and politicians will then seize the opportunity to build a new savings strategy for the UK on a professional IFA sector.

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