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Cost versus benefit

Afia’s view

There was a sharp reminder this month of the possible unintended outcomes of the RDR. This came in the latest consultation from the FSA on data and complaints reporting requirements. This latest paper – which I am identifying as part of the “now how do we actually make this work” series of consultations – looks at the reporting requirements necessary after 2012.

The FSA will need to consider what data it needs. One of the key risks that Aifa has long highlighted is the need for the FSA to police the split of adviser and product charges in vertically integrated firms. However, the benefits of having data far beyond this must be weighed against the cost involved for firms – and thus consumers.

Coming at a time where the costs of regulation continue to escalate, the question must be asked – what significant benefit will the industry and consumers get by our regulator having such vast amounts of data?

This brings me to the second element of the paper – the reporting of adviser complaints. The Financial Services and Markets Act makes it clear that complaints are made against regulated entities, not individuals. This is the basis of regulation, the operation of the ombudsman and is quite clearly enshrined in statutory legislation.

Some may accuse me of overly worrying but I am concerned that the wider ramifications of the measures have not been considered. Could it, cynically, not engender a spirit of responsibility and professionalism on advisers but in fact push liability on to them? To some, this may well sound reasonable, to others, not.

I have heard views from some members who think that the ability to track individual advisers throughout their careers is a good idea. It does, however, beg the question – is using complaints to monitor advisers an appropriate risk indicator?

The paper itself acknowledges that complaint data alone is not an indicator of poor advice. What about administrative errors and delays? These are still valid complaints but the draft complaints’ return in the paper does not allow for company or generic complaints – instead, they must be attributed to an individual adviser. The FSA has stated that the complaint record will help to monitor an adviser’s professional standards.

Returning to the costs of data collection, is it then reasonable to conclude that this data could be collected not by our regulator but by those accredited bodies that are responsible for issuing the mandatory individual statements of professional standing? After all, these bodies will have to report to the regulator anyway. Reporting the same data twice is an unnecessary cost and burden to both firms and individuals, and ultimately to our industry.

This is not the first, or last, consultation looking at the specifics of life in financial services after 2012. However, with less than 18 months to go and with the actual specifics of the new rules only now being thrown up, we need to assess what is reasonable and practical for firms to be able to implement in this timescale. And what benefits, if any, they will bring to advisers and consumers.

Andrew Strange is policy director at Aifa

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