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David Shelton: Regulation has come a long way in 20 years


I have been working in Hong Kong for the past two weeks helping IFAs deal with hard disclosure which the UK experienced in 1995.

It has been interesting to reflect back on how this played out in the UK and to compare the two regulatory systems. In Hong Kong there are several bodies involved in regulation with overlapping powers and interests – compared to our single regulator (for most firms).

It looks as though the UK is about to reduce the number of documents whereas Hong Kong is still building the paper mountain. Consumer protection and advice quality are stronger in the UK but a larger proportion of the Hong Kong population have access to the market. In many ways there are similarities with the old style direct sales forces which may not have sold the most competitive products but made sure that many people saved who may not have done so.

What relevance has this to our businesses almost 20 years after hard disclosure and several thousand miles from this southern tip of China?

The journey has been interesting because that single change to hard disclosure probably set off a train of market-changing events. The level and pattern of commissions changed quite quickly, wraps and platforms entered the market and the competitiveness of traditional products and providers began to decline.

IFAs shifted from product to service orientation and the opportunity arose for a wide range of support, network and out-sourced services. Of course other changes and regulatory initiatives supported this trend but when the hard disclosure stone was thrown into the pool the longer term ripples were far reaching.

However, the advice that I gave many Hong Kong IFAs is applicable to firms in the UK today. Look for the market trends, make the best judgement on timescales and decide if or how your business needs to change.

For some in Hong Kong the changes will be quite extensive, by comparison the UK market is in a more stable phase. Making change is always difficult because it involves resources and time which are scarce and judgement where there is no certainty of outcome.

In addition, major change requires careful planning and implementation in phases.

If you are currently changing parts of your business model in response to the RDR stone in the pond setting long term direction is important. But making the change in stages of two or three years at a time makes the whole exercise far more manageable and gives you better control over the entire process.

David Shelton is the author of “The Business of Advice” book and website



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