One of the problems with financial services is the Government and regulator’s view that the consumer must be pandered to. Any type of fecklessness can be contemplated and any sort of dubious experiment tolerated as long as it is flagged as in the interest of the consumer.
When we look back at well-intentioned initiatives, we see a clear pattern. The shrine of low charges has enjoyed many a sacrifice since the advent of the Sandler hypotheses. Stakeholder pensions appeared to offer a low-cost, flexible entry for millions of consumers who had failed to make sufficient provision for retirement.
The fatal flaw was that the low charge structure was insufficient for the provider to include a marketing allowance – commission.
This failure was despite the usual suspect providers telling all and sundry that they would be able to operate profitably if a critical mass could be achieved. Of course, the critical mass was dependant on advisers marketing them and the experiment foundered on the reasonable premise that advisers cannot operate as charities.
Which was better – millions of consumers saving through higher-charging pensions or millions less with no provision and little intention of resolving their problems? This pandering has also created the fiction that misselling continues to be prevalent in retail financial services. This despite in-depth research, regulatory surveys and investigations confirming otherwise.
By heightening the notion that misselling is rife, the regulator assisted in kickstarting the predatory claims management industry, giving it free rein to prey upon the innocent and guilty alike. This has produced a non-virtuous circle where, partly due to numerous banking fiascos, consumers believe the whole financial services industry to be corrupt and fair game for their own form of opportunism.
Allied to this is another regulatory conundrum. The theorists appear to believe that consumers are somewhat dim-witted and cannot understand information provided. However, they simultaneously promulgate the idea that these very same dim-witted consumers are capable of buying complex products online with little or no assistance.
After 25 years of unrelenting regulation, the population has lower levels of saving, lower levels of retirement income and far higher levels of personal debt.
The view that cheap is king, recently expounded by Adair Turner, exemplifies all that is wrong with regulation. Cheap can be measured so it provides an easy way for a bureaucrat who wishes to score some points but it fails to assist the consumer.
Most advisers recognise that the consumer does not normally know best. But only in this industry does the axe fall on the middleman when things go wrong.
Alan Lakey is partner at Highclere Financial Services