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A perfect storm

Perfection is easy to achieve if you set low standards but it is clients who will suffer

In a business as important as financial services, those failures can look very bad, particularly when viewed in isolation by the client one has failed. Individual failures of advice are unavoidable, however. All humans have bad days and all make mistakes – even you. That is why advisers carry big professional indemnity insurance policies. They are the evidence of our honest acceptance of our humanity.

But the days of systemic failures in advice are almost over. The endowment boom was the last time a bunch of inexperienced big-brand businesses plunged into the advice market in search of bumper profits.

The new wave of big-brand entrants to financial services are determined not to make the mistakes of their predecessors. The likes of Tesco and Direct Line have decided not to advise. Under current FSA rules, this allows them to strive only to reach a low common denominator, which makes perfection easy to achieve.

All they need is to do is disregard suitability as an issue and they can be low priced, easy to buy and profitable. Non-advisers need everything to be simple and automated enough so that consumers are not so confused that they realise they really need advice.

Striving for something that looks perfect because it does not need to suit the customer is easy and very profitable. Mortgage payment protection insurance accounts for around 10 per cent of all clearing bank profit in the UK. Now that’s how you do it.

Supermarkets and other businesses with huge, loyal customer bases are driving into non-advised life insurance sales ever harder because there is no risk, under present FSA rules, of brand damage, because it simply does not matter if the sale is suitable to the customer or not.

What joy and what a clever way of shafting the consumer. Let them do it to themselves.

The only thing that stands in their way is if the regulator realises that they are breaching the core FSA principles because they will necessarily cause a rise in sales of unsuitable policies. So they need to lobby the Treasury to keep the regulator tucked up and delay the realisation that protection is a very high-risk buying decision.

Remember, too, that advisers will always have to deal with bad press. After all, one bad mistake a day across the 26,000 registered firms is a tiny error rate but plenty enough to keep the media supplied with human inter- est stories for ever.

Governments and regulators hate inconsistency. They love fail-safe processes that cannot let anyone down. That they can never lift anyone up, either, can seem the lesser of two evils in the eyes of a politician or civil servant.

Only the brave will seek to defend a process which lets a consumer down every day.

But if advice is not defended, the consumer will buy what they rarely need – small amounts of life cover – and never realise what they really need. That is causing a breach of FSA principles, if ever anything was.

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