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Chris Hannant: What the FCA’s board minutes say about the regulator

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One of the August traditions is the publication of A-level and GCSE results together with the newspaper pictures of young people celebrating.

Alongside this year’s results there was much comment about the fall in the top grades as efforts to make the exams harder begin to bite. This was followed, perhaps unsurprisingly, by employers and universities, those trying to make sense of the value of grades, calling for stability and warning about the danger of unintended consequences when making constant changes that are not fully thought through.

I began to see a similarity between the education sector and financial services because August also saw the publication of the minutes of the FCA’s June board meeting, at which the implementation of the RDR was discussed and a number of key issues were identified. Among the key issues were two that I found particularly concerning – not just the substance but also what they indicate about the way the FCA works.

Those issues are whether the lack of an end date for the payment of trail commission might lead to firms acting in a way that risks poor consumer outcomes and concerns that contingent charging methods may lead to an increased risk of churn.

In other words, the regulator is worried that there is a risk that some firms might advise their clients to do nothing when they should be advising them to switch products while other firms might advise a client to switch products when they should be doing nothing. Damned if you do, damned if you don’t.

What concerns me is that these “key issues” were discussed by the FCA board less than six months into the RDR. The framework has been debated over six years. Advisers spent many hours and a lot of money preparing for and implementing the RDR changes. Many are still refining their business propositions as the changes bed down and consumers acclimatise to the post-RDR world.

I believe it will take at least two years for the full impact of the changes to work through the profession, so it is far too early to draw firm conclusions about the outcome and impact of the RDR.

While the sector is undergoing a significant period of change, further changes to the regulatory environment will be destabilising to businesses’ ability to plan. The FCA should also recognise the damage uncertainty from speculation about potential action causes firms.  

What is needed is a period of stability and better management of the regulator’s communications to manage expectations. There should be no more changes until after the FCA’s promised post-implementation review in 2014 and we could do without “policy creep” by hint and rumour.  Advisers need to be able to plan and, to do that, they need certainty about the regulatory environment in which they are operating.

In the same way that an exam system which constantly changes makes it difficult to know what exam grades really mean, a constantly changing regulatory environment means that advisers no longer know whether what is a viable business today will still be viable tomorrow.

Chris Hannant is director general at the Association of Professional Financial Advisers

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Just a few of the problems with the way in which the FSA seeks to interfere with and micro-manage every aspect of the ways in which intermediaries run their businesses and how they advise and service their clients are:-

    1. It conflates changes (often concocted from theory rather than practice) with progress, with no consideration for the problems that the former frequently create,

    2. Having no such concerns of its own, it totally ignores the issues of costs and whether or not consumers actually want or need endless additional regulatory processes, let alone want to have to pay for them or spend hours ploughing through reams of text trying to get to grips with them all. A client said to me just a few weeks ago: All I’m interested in is the bottom line (Proposition, Costs and Risks), whilst another said: It’s all b*****ks, I don’t know how you cope with it all.

    3. It ignores, and certainly doesn’t publish for all to see and to debate in open forum, all feedback on its “consultations”, its default position being that any objections are based purely on self-interest and may therefore be dismissed.

    4. No Independent Regulatory Oversight Committee exists to impose on it any sort of system of checks and balances.

    As a result, intermediaries are:-

    1. tied up in knots by excessive levels of regulation,

    2. they’re seeing the financial viability of their businesses and thus their livelihoods progressively eroded,

    3. increasing numbers of intermediaries are frustrated and depressed (I’ve talked to a good few and NOT ONE has said that things now are anything but significantly worse than they were just a year or so ago) and

    4. more and more clients are being excluded from advice because the costs of providing it have ratcheted up to unaffordable levels.

    Elsewhere, Martin Wheatley is reported to have expressed his opinion that for people now priced out of the advice market (the majority of Middle England), online DIY sites are the solution. How out of touch can he possibly be? If such an opinion were remotely grounded in reality, why would anyone need to talk to someone at the non-advice-providing Money Advice (?) Service? They’ll just go online and…….sort it all out for themselves, just like that. Is he seriously suggesting that people in the the middle and lower bands of the social and financial spectra simply won’t (perhaps, in his opinion, already don’t) need or miss the services of an IFA and that online DIY sites are a credible alternative? I beg to differ.

  2. The key issue here is timing. The RDR was designed around 7 years ago to address the problems within the industry at that time. Due to the scale and size of the implementation, it understandably took a long time to come to fruition. During that time, the advice, regulatory, industry and consumer landscape changed and evolved considerably. Add to this a whole new set of staff at the regulator and there will naturally be many teething problems. You complain that the regulator has caused these issues, the truth is that much of the FCA board and senior management is relatively new, many members came in within the last 24 months. They have to manage the legacy expectations of a potentially outdated plan and the current industry fighting the detail.

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