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Action plan for FSA

Regulator must play a greater role if it is to reduce the scope for misselling

If I had one business wish for this year, it would be that the regulator acted more proactively to promote a positive image of the industry. It needs to reduce the scope for misselling which can only be achieved by it becoming more accountable and playing a greater role in the regulation of our industry.

I am fed up with dealing with scandals after the event and finding that the measures taken were insufficient to protect the adviser. With improvements in technology this century this situation can be eradicated.

The FSA employ a large skilled workforce and I would like to see it use part of that workforce to scrutinise each provider’s products. The FSA would then only allow the product provider to retail its products once its literature had been approved. The regulator would stipulate what sales literature had to be given according to the sale processes used. Post sale, the process would be fully approved.

If it was an advisory sale, a suitability letter would be written by the adviser but each fund and product would have a draft suitability letter approved by the FSA, with mandatory sections. The adviser would be responsible for tailoring this to the client. The draft letter would be pulled off the internet, dated and coded, so it was clear that the letter was current.

This appears like a straight jacket for the adviser. In practice, it would save time, reduce the scope for misselling and cut our PI insurance. Yes, the adviser could make a mistake on tax or put a high-risk product with a low-risk client but it would be a simple error which is what PI should be for. Never could a company bring a new product to the market without having it examined, risk rated by the regulator and an approved sales process being agreed for advisory and non-advisory sales.

This process would have eliminated the Split Cap debacle, where the literature said it was low risk and the regulator said otherwise and that it had no responsibility for the product provider’s literature. Similarly, precipice bonds could surely not have been marketed as they were and the same goes for endowments.

I am minded of one company which paid out millions for pension transfer misselling mainly because its suitability letters in the early 1990s did not include a risk warning about falling annuity rates. If this was a mandatory paragraph in a suitability letter completed online, this could not have happened.

This is a massive undertaking but it could be phased in product class by product class over a period of time and, given the insurance company’s interest in having its product in a position to be sold, the FSA could count on plenty of support. The FSA could focus on high-risk product areas, such as lifetime mortgages, and prevent rather than react to problems.

We are a 21st-century industry and we have the technology to implement this measure. For the first time we would have true accountability of the regulator and the adviser would have a robust compliance system that was up to date. If the adviser had followed the prescribed sales process and matched the product to the clients’ needs, there should be no scope for a misselling claim because best practice could be proved to have been followed.

There would be reduced scope for the ambulance chasers, a reduced need for external compliance and lower costs. The regulator would still have plenty to do and while new products would take longer to bring to market, I wouldn’t care if it meant that those that were saleable could be retailed with 100 per cent confidence and no more looking over ones shoulder.

This measure would have prevented the misselling of precipice bonds, endowments and split capital investment trusts and reduced pension transfer misselling. I can think of no other measure that would have been so effective and given the billions that these have cost and the loss to our respectability, there is no excuse for not implementing it now.


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