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Broken banks

I’m waiting for the apology from Callum McCarthy. The one that says “I got it wrong in September 2006.”

In his notorious speech, McCarthy declared: “The model is broken.” He based this on the fact that in the year to May 2006, the top 21 IFA firms had between them made a loss of £22m. There was also a carefully crafted comparison of IFAs to door-to-door electricity salesmen, or shippers of convicts, neither of which I quite understood.

It is a matter of historic fact that the majority of the losses quoted were incurred by national IFAs, busy investing in scale and infrastructure. The wider IFA community had been warning the FSA about one or two of these firms for a while, to no avail.

Let us move forward 24 months, to last autumn. We found out that, in fact, it was the banking system that was broken and the impressive £22m of IFA losses were less that the gilt-edged pension awarded to Fred the Shred.

The wider cost of repairing the damage is still unknown, but start at £100,000,000,000 and work upwards. Or around £7,000 for every family in the UKLet us just compare that to the loss per family per annum caused by IFAs – £0. Shall we count that again? Because we meet our own losses. And for when we can’t, we pay into a fund that does and we share the burden. So successfully have we done so that the FSA has decided we should bail out failed dodgy stockbrokers, that it regulated and which we warned them about.

Given this background, is it any surprise to see the upper echelons of the FSA staffed by former bankers and to see the revolving door between the FSA and the banks? That is supposed to lead to more effective regulation? There is no such door between the FSA and IFAs. Could the relative salary packages on offer be an issue here?

When we came to the launch of RDR mark III in November 2008, it was surprising and galling to see a procession of ex-bankers queue up to criticise the IFA sector and explain to us what we should do to look after our clients. Does the phrase “cast out the beam from your own eye” ring any bells?

As IFAs, we live and die by our long-term relationships with clients and when we get it wrong we cannot go cap in hand to young couples and old age pensioners and ask for a handout. We have to pay our own bills.

Perhaps the bankers ought to consider how the personal accountability of the IFA sector may be a more secure model on which to rebuild a viable banking sector from the ashes.

I have one concrete suggestion. To ensure clarity and integrity, senior civil servants cannot take senior positions in the companies they have regulated until a gap of at least two years has elapsed. The FSA opted out of this provision. Should it now be enforced?

Phil Billingham is chief executive of Perception Support


Inheritance tax and estate planning – exemptions and reliefs

By Kim Jarvis, technical manager with Canada Life’s ican Technical Services Team In this article we look at the main exemptions and reliefs that are available on death. Within the article, spouse also means civil partner.   Nil-rate band Under current rules, any part of the estate that falls within the available nil-rate band (NRB), […]


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