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Campaign: Give the regulator an objective to boost saving

As the Government consults on its restructure of financial services regulation and with the coalition still seemingly in listening mode, now is the perfect time to lobby for improvements.

This may be the only occasion in the foreseeable future when we have a chance to step back, take a look at the way regulation is working and suggest alternatives.

The FSA has five statutory objectives – market confidence, public awareness, financial stability, consumer protection and reduction of financial crime.

One of the big criticisms of the FSA on the retail distribution review and other retail financial services matters has been a perceived lack of concern about a fall in the number in individuals getting access to financial advice and financial products.

There is worry in the IFA sector and wider financial services industry that the RDR will lead to fewer people being able to access advice and therefore fewer people saving and protecting themselves and their families. At the coalface of the industry and with their interests aligned with consumers, IFAs have been the most vocal in their concerns about the damage this policy could do to savers. They are not alone. The likes of Peter Hargreaves, interviewed in this issue of Money Marketing, and life and pension providers have also been expressing growing concerns.

Money Marketing this week launches a campaign, Pave The Way To Save, calling on the new regulator to have a specific statutory objective to “have regard” for increasing savings rates and levels of protection, a move that we believe will create a more balanced and constructive approach to regulation.

The Treasury is consulting on the role and function of the CPMA. The new regulator will have a primary objective of ensuring confidence in financial services and markets but will also have a set of statutory secondary considerations or “have regards” to take into account when pursuing this objective.

The Treasury uses the list of FSA principles as examples of secondary objectives but asks if the new regulator should consider any other public interest issues. Increasing saving levels is the type of public interest issue that should be of concern to the Government.

Such a move would align itself with Prime Minster David Cameron’s vision of a “big society” that takes on more responsibility and help deal with changing demographics.

Nest and auto-enrolment should improve the picture but a regulator charged with helping in the battle to get people to take responsibility for their own financial affairs has got to be a step in the right direction.

For many people, dealing with debt is a more pressing concern and any move must be made in tandem with a solid financial education programme. It looks like the Consumer Financial Education Body is moving in the right direction, helped by the huge sums of money the industry will be paying to fund it.

Cynics may say the Government has no desire to increase savings levels due to the effect it could have on spending. If that is the Government’s agenda, then it should be made public.

A new statutory objective on increasing savings and protection would not be a panacea and there are many other arguments to be had, for instance on scrutiny of the new regulator’s costs, but we believe it would go a long way to creating a healthier regulatory environment that could benefit millions of people.

Raise public awareness

Protection Review co-chairman Peter Le Beau

Protection Review supports this idea as the state will not provide the safety net that many families assume it will.

For too long, those in charge have over-regulated the best while allowing some of the worst practices to prosper. Focusing regulation on what people need to know about financial services should serve consumers’ best interests.

One of the FSA’s key objectives is to promote public awareness and understanding of the financial system. It is a sad fact that many people are not aware of the risks they have taken on by default or the range of value solutions the industry can offer to manage those risks.

Protection Review surveys have shown that the public and IFAs are hungry for more information and the FSA has the clout to help ensure that can happen.

Protection Review will give its help and support to any campaign that looks to increase awareness among the public.

Responsibility to close the gap

Aifa policy director Andrew Strange

The debate on regulatory architecture is the most important regulatory issue our profession has faced in many years. Aspects such as the twin peaks’ approach are decided but there are many wider issues to debate.

I whole-heartedly agree the starting point for regulatory reform must be the purpose of regulation. Regulating second-tier issues at point of sale has, and will continue to result in a reduction in take-up of advice.

The priority should be to produce a regulatory regime that encourages more consumer involvement, builds on the Government’s rhetoric of consumer responsibility and delivers a robust and innovative sector.

We must do more to reduce the savings and protection gap and regulation has a role to play. One option is for the regulator to have a statutory duty to reduce the gap. The advantage would be to make it explicit that the regulator must put this objective at the heart of all it does and not introduce reforms that would reduce access to advice. We could also increase the powers of the board and statutory panels to provide a stronger check and balance in the debate.

Aifa is working extensively with politicians to deliver a better outcome for consumers and advisers. We will also be publishing a full report which will contribute to the debate.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Paul I hear what you are saying but disagree. What we need to do is get the whole fabric of regulation changed back to the way it was before with a two pronged approcach. Regulation of the bancassurers by one part of the CPMA and regulation of IFA’s by the other part. The need differing levels and types of regulation with fees set accordingly. The IFA market accounts of 50% of sales transactions in the UK according to an earlier MM article today but has only 2% of complaints of which I think 39% were upheld. That means that 0.78% of complaints in the industry were upheld against IFA’s. What we need (By that I mean AIFA) is for regulation, fees and any form of compensation scheme should to be fit, proper and at a level that is comensurate with the risk of client detriment. Everybody knows that a one size fits all approach for regulation doesnt work and yet the FSA insist on maintaining this via the RDR. It is not going to work. The whole of the advisory community knows this as it will lead to less people having access to advice as lots of the “non HNW clients” simply wont be able to pay the fees that are necessary to sustain even a small IFA practise and lots more will simply refuse to pay fees. The follow on form that is so easy to see its unbelievable, that fewer people paying fees means that more IFA’s go out of business which means fewer advisers to advise in a market where costs are spirialing out of control so those that are left are goingto have increase fees which then removes those clients who only just managed to pay the previous years fees therefore fewer people paying fees and more IFA’s going out of business. The only way to rectify this is by way of an abolition of the current regultions and a sensible revamp put in its place by a body who is funded by public purse (not the industry) and who is 100% accountable for the impact the regulations have on the customer and the adviser be that positive or negative. If it works then the body has to be commended and if it doesnt, then heads must role and be replaced to fix the problem, not just impose more regulation. Lets get this process underway and get AIFA lobbying now for total change to make the UK a leader in FIT & Proper Financial Regulation.

  2. Paul, I think your initiative is timely and clear and right. I just wish you had added protection to the brief. The diligent saver who has no protection against his/her loss of income is a fool, or if s/he has dependants, a cruel fool. Government policy should reflect this. So should your campaign. Go for it!

  3. Whilst I would hate to see some of the sales tricks used 20 – 30 years ago, the likes of Hambro Life, Abbey Life, Prudential and Pearl all had sales teams. They were wealth creators or hunters as some people would put it.

    Yes they twisted a few arms to get people saving, and certainly Hambro Life got people well protected.

    We are all now wealth managers, farmers not hunters.

    Regulation is killing off the remaining hunters in the form of IFAs having killed off the sales forces of old.

    Who can deal with someone who wishes to put £50 per month into an equity based ISA. Go back to 1989 and I did masses of this type of work and many of those clients are still clients today and grateful that they did some saving.

    To arrange that same plan today would cost me too much unless I could charge a sizeable fee. I have my PI cost, FSA/FSCS costs, administration and time spent seeing the client.

    Whilst you cannot turn back the clock, some of the old sales methods and ways of working were not all bad. The industry got really tainted when the building societies and banks came into the market mainly selling endowment plans and the insurance company marketing departments took over from the actuaries.

    The same plan now would cost me nearly ten times as much to set up now.

  4. AT LAST – we are now discussing the real issue the one that the FSA/RDR/regulation will not ever address – the LONG TERM REGULAR premium savings/pension/protection gap. It is that gap and that gap alone that will close the gaping and ever increasing savings black hole. NOT lump sum wealth management !!

    It is the regular savings gap that has become broken NOT the advice model as FSA would lead us to believe. Much of the blame lies at the regulator’s door

    A fundamental change of direction including ditching the unbelievably damaging RDR is required by the ‘new’ regulator and then maybe the regular savings culture might be encouraged as it used to be.

  5. Bring back the mortgage endowment? The MIPP? The WOL ‘savings plan’? When you see what life offices did with the money entrusted to them you might be forgiven for wondering why we bothered.

    All joking apart, with credit card and personal loan rates at an all time high is the most effective form of saving to reduce the debt?

    Does that mean the regulator should also be given an objective to reduce said debts?

  6. We are please to support your campaign and will be mailing our 5,000 strong database urging them to contact their MPs to promote the issue.

    WELL DONE Paul!

    Steve@ IFAbonus

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