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FSA chairman warns of “radical” fee caps and product bans

FSA chairman Adair Turner has suggested a “radical rethink” of regulation which could include the introduction of price caps and bans on some retail financial products.

The regulator has published a discussion paper on product intervention today, looking at whether new powers should be granted to the forthcoming Consumer Protection and Markets Authority, which is set to take over retail regulation from the FSA in 2012.

In the foreword Turner says the paper proposes a “new and more intrusive approach to the regulation of retail financial services,” and is designed to stimulate debate about how the FSA and the CPMA should pursue its objective of consumer protection.

He argues that severe consumer detriment has not been averted by focusing on fair and transparent sales processes.

Instead the regulator will look to focus on earlier intervention, including the banning of specific products being sold to certain customer segments.

The CPMA could have the power to set maximum prices on specific services, ban or necessitate certain elements of complex products or force even more products to carry risk warnings.

Speaking to the Financial Times Turner says: “This is a radical shift. We have made part of the shift already… but now we are asking how radical we should be.”

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Comments

There are 27 comments at the moment, we would love to hear your opinion too.

  1. ‘More intrusive’ – ah yes, this is exactly what we need. Great thinking dudes.

  2. I am slowly becoming convinced that it will no longer be possible to run a retail financial services business in the UK.

    The politicians need to give us some firm indication as to whether this is their aim or whether future regulation will be conducted on a commercially viable basis.

    I now believe that our businesses are becoming un-investable and will remain so until a firm, fair and clear regulatory structure is established.

  3. ‘ere we go, ‘ere we go, ‘ere we go…….again !!!

    Will the last one out turn out the light please !!

  4. So far I have stayed out of the FSA bashing debates, being broadly in agreement with the objectives of RDR, however I do really think they should shut up and let the dust settle.

    It seems not one day goes by without somebody at the FSA asking for more powers or setting out plans for more control and this latest one really takes the buscuit. How can the FSA make the decisions on pricing structure and product selection, surely this is an outcome of the market economy?

    Yes our industry still suffers from too many unethical sales people (Barclays Bank just to mention one) but the FSA really need to get rid of the “department for silly ideas” and focus on the real issue, ensuring the public receive totally independent commission free advice from professional and ethical advisers, surely cannot be that hard.

  5. “the regulator will look to focus on earlier intervention, including the banning of specific products being sold to certain customer segments”

    That must be one of the dopiest statements he’s made in a long time. And that is saying something.

  6. Nice of Lord Turner to finally admit that regulation in our country has been a failure, even with him in charge. In order to protect the consumer better, perhaps we should ban those on low incomes and older people from buying privatisation shares, lottery tickets or playing bingo! mind you, it would help if wholesalers were prevented from being classed as retailers (Lifemark, etc.).

  7. Speechless. !!!

    Are these the same consumers that, buy utilities, contract with builders for home extensions, enter into mobile phone contracts, divorce, start businesses, shop for groceries, book holidays, enter into marriage, decide to have children, purchase cars, go to the dentist and still manage to breath without the assistance of the FSA.

  8. The only reason they said they would in a commission ban was because they could NOT impose a price cap. If there is now top be a price cap why ban commission?

  9. I wholeheartedly support the FSA’s drive to make life simpler and easier for consumers when selecting Financial Services products (esp. Investment).

    But this needs to be part of a much wider review. The agenda of building confidence in the Financial Services industry and it’s products is to be applauded, customers have been battered by pension and endowment mis-selling, Equitable Life. etc. Recent events with Keydata, Barclays etc do little to build confidence.

    The regulators, politicians and the industry know that there is a huge and widening gap between what the UK population will need in retirement and what it is currently saving for – that is the ELEPHANT in the room.

    Price caps alone are unlikely to work – Stakeholder pensions is an example. Though NEST might create a new benchmark?

    One of the big issues in retail investment is that a potentially huge cost (the trading costs within a fund) is not included in the TER and very poorly disclosed elsewhere. These costs won’t be disclosed in the new Key Investor Information Document (KIID) either. This is one area that needs urgent intervention. (A UK Equity fund with 100% turnover could have drag of 1.8%pa which is higher than it’s TER – average turnover in 2008/09 was 90%, with some over 500%). The impact of these costs should be on every investment promotion.

    Consumers and regulators must wonder why in early 2000’s the retail funds industry had TERs that averaged c1.5% when total assets were £200bn, and yet 10years later when assets have more than doubled TERs have gone up to nearer 1.7%pa. You can see why there is interest in this – it doesn’t make sense!!

    RDR is driving transparency in advice costs (arguably the most valuable piece of the jigsaw), and to a large extend platform costs – surely the same standards of complete transparency should be in place for retail funds and discretionary fund management, credit cards etc?

    Simplicity would be great – but it doesn’t deal with the 1000’s of legacy products. The so called Pensions Simplification by the previous Government was hardly a success.

    And what does simple mean? A frontier market unit trust is simple (but not low risk), a triple A rated multi-counterparty structured investment with auto kick out is not simple (but might be low risk). UCITs IV rules already allow extremely complex investment strategies – could FSA restrict the sales of these cross border into the UK? A COMPLEXITY warning on some of these products would seem a minimum requirement, with making them available only to professional investors a good idea in many cases (the vast majority of consumers do not need to buy these).

    RDR is driving up professional standards and withdrawing commission on product sales – but this hasn’t been given a chance to work yet??

    The product providers will of course say that more detailed product scrutiny will drive up costs and reduce choice, but for many customers there is arguably too much choice already. Paying off debt, getting some rainy day savings, buying some life cover (for those with families) and saving in the employers scheme/NEST would seem to be a good solution for many of the UK population, and for those who can afford advice there is a well regulated, professional adviser market just round the corner.

    Adopting an approach much like the consumer organisation Which? which highlights and publishes poor outcomes, flags concerns about products that may unsuitable for different customers, issues regular warnings about potential risky products, benchmarks product charges etc would be a great start for the CPMA.

    Getting this information out to the National Press would, in my opinion, be much more valuable than announcing fines for insider traders (critically important though this work is), and help customers have confidence in the CPMA and the industry, I look forward to the debate!

  10. Incompetent Regulators Award Team 25th January 2011 at 9:52 am

    What about dalary caps/reduction for regulatory staff as has happened in the private sector?

  11. A Price cap on the FSA would be a good idea whilst he’s removing the financial services industry from the Free Market

  12. “The way we do things now is not good.”

    You don’t say! What next? The Pope is Catholic?

    I am not related to him BTW

  13. Hip hip hurray for once the regulator is starting to talk sense.

    I wrote to my local MP recently on this subject as I was very concerned about the Chelsea building society structured bond product that offered clients a minimum rate of return of 18% and a maximum rate of return of 60% over six years. My problem with this type of product was that the posters claiming 18% were in fact misleading as the true reality of this product was only a yearly interest of 2.79%. The product had in fact been structured in such a way that client had no chance of getting the maximum 60% rate of return. We managed to collect hundred signatures from the general public after holding a demonstration outside of the Ipswich branch of the Chelsea and forwarded this as evidence of the problems within financial services. I like many IFA’s would like to see these types of products banned as they only generate large amounts of profit the organisation that offers them. It’s about time that the FSA or the new body took more interest in product design rather than just concentrating on the advice given.

    This could even be a cheaper way of regulating financial services.

  14. No doubt speaking for himself and his charges!

    How easy is it to cap the commission? Suggested many times before but seemingly ignored.

  15. This guy is not in the real world is he.

    UK financial services is amongst the best in the world, particularly at innovation, although not all good I appreciate. It has helped prop up the ecomomy, with intangibles revenue for decades and to stifle innovation, product creation and marketing would be a crime.
    What’s more, market forces should drive income/revenue, not fools elsewhere

  16. Another u-turn and more intervention? Lord Turner find yourself an old fashioned IFA with years of experience, sit down and LISTEN, you might be surprised at the logic and common sense that ensues.
    Are you also going to cap the lenders interest rates of weekly money who advertise on television, 3000% APR,
    or the banks and credit cards that charge 60 times the bank base rate? or are you just interested in the destruction of pension sales by limiting the stakeholder still to 1% charge???

  17. There is a recent report issued by the London School of Economics that puts Civil Servants at the bottom of the competence list when it comes to handing out management advice, and the FSA are Civil Servants in everything but name. But that doesn’t stop them from grabbing for more power in order to tell the industry how it should behave.
    Lord Turner says that “the way we do things now is not good”, yet that does not stop him requesting yet more powers. After 25 years of Regulation and 10 years of the FSA they are doing an Oliver – we want more.
    Yet history indicates the FSA cannot successfully use what they have; research indicates there is no possibility of them successfully using what they have; but they have successfully fractured the market with what their activities.
    Lord Turner uses the phrase “severe consumer detriment” yet there are no statistics to prove this point – just saying it at every conceivable opportunity does not actually make it true. Every figure that has come out of the FSA, and there has been precious few, indicates that the detriment level is well within normal tolerance levels. Nothing is ever perfect so the first statistic must be to determine the practical level of detriment beyond which it costs more than £1 to save £1. The FSA has no such business model. Much to their shame, neither do AIFA so far as I can see, so there is little or no basis for countering the FSA power grab.
    There is also a two-faced side to Lord Turner’s submission in that the EU have concentrated on product control and the FSA have always opposed it. Amazing how hypocritical an organisation can become when power is up for grabs – of course, it makes the process a lot easier when there is a supine Government and Parliament facing them.
    At least Lord Turner admitted that concentrating on the advisory process has failed. But will that deter them pushing even further on the advisory route – absolutely not.
    So there will then be two separate strands of regulation for the consumer to support. There will be a doubling of the size of the FSA in manpower and Budget. There will be even less reason to consult with the industry – if the Government are happy to extend our powers after the mess we have made of the last 10 years, we must be doing alright, so we do not need outside help.
    Isn’t it about time someone asked the FSA to do things better with what they have. To prove they have the capability of operating effectively and efficiently, before piling on yet more powers.
    And most importantly, to require the FSA publish a 5 year business plan that outlines targets, achievements, failures and costs in objective, clear and measurable terms; and provide annual reports showing progress against those targets. That’s what they expect from the industry. Let the FSA set an example.

  18. First, let’s look at the positive aspect of this. If suspect products are banned then it should mean that those remaining are acceptable and we have no repetition of the Keydata nonsenses.

    However, Turner’s comments highlight the lack of faith that the FSA has in the RDR uncovering the holy grail of consumer enfranchisement.

    Also, yet again, we are bombarded with suggestions, thoughts, hints and innuendo all of which interact with the RDR and TCF mantra’s. Surely such ideas should have formed a substantial part of the RDR papers. You can’t just nail this on and hope that it sticks.

  19. Is it just me or has anyone else noticed how suddenly the FSA is not only running its own agenda but setting the agenda for the CPMA, which does not even exist yet? How can that be right? If it is allowed to persist all we will end up with in 2012 is the FSA by another name.

    Also my observance is that most regulators idea of managing risk is to eliminate it altogether which, of course, is diametrically opposed to the notion of taking risk to enhance returns. If we eliminate risk entirely there will be no need for advisers of any hue as there will be no returns to pursue.

  20. One of the main comments that I hear about IFA land is that we are basically a cottage industry. Yet this “announcement” smacks of an attitude of “making it up as we go along”. I wonder what new term we could come up with…restricted independent financial advice? or how about this one… Financial Advisers Restricted and Commission Enlightnened (FARCE).. Why on earth is this so poorly thought through?

  21. If the calibra of UK leadership is that of Lord Turner,

    God save the Queen and God help the Nation.

    Is a free man not allowed to make a mistake or exercise individual choice

  22. As the late great Eric Morecambe would have said “This boy is a fool”

  23. Fee cap, what a shame, all the far sighted IFAs who have championed fee only advice, together with the balance of the profession who will be forced into fee based advice from 2012 are set become saddled with the regulator effectively deciding just how much they can earn per hour. You can bet that once everyone is corralled there is only one way the fees will be driven, it will be like waiting to see what payrise the boss it going to award next year -or not.

  24. Lord Turner’s line of thinking seems, in essence, to be that we must all charge less for our services but the FSA and FSCS between them are going to continue to charge us ever more. Sooner or later, running an IFA business will no longer be an economically viable proposition. Whatever we have left over after all the overheads of running our businesses will just be taken away from to feed the monsters at Canary Wharf and to pay for the consequences of their incompetence and oversights. The word sickening barely hints at the pernicious injustice of it all.

  25. Julian – You usually have something positive to say, I guess even you see the gate slowly closing on the industry.

  26. Q: How do you own a loss making IFA ?

    A: Buy a profit making one and leave it to the regulator stuff it!

    Sad but, true

  27. the make money ( http://www.adsense.pk )
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