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FSA coming up short on long stop argument

Last week’s revelation that the chair of the joint Parliamentary committee on human rights has called for a Government explanation as to why IFAs are not subject to the 15-year long stop is welcome news.

As part of the retail distribution review, the FSA has already dismissed calls for IFAs to be given the same rights as other professions and brushed aside strong arguments that the long stop would create a more sustainable sector which would benefit advisers and consumers.

In last November’s RDR paper, the FSA stated that it believes there is not enough evidence of the benefits of the long stop to justify allowing advisers the same rights as other professions.

Money Marketing believes the FSA is starting from the wrong position. Instead, strong evidence should be produced by the regulator as to why advisers should not be afforded the same rights as others. Indefinite liability is causing a huge amount of damage and instability to the IFA sector, which is also bad news for consumers. Making advisers subject to the long stop would bring invest-ment and financial stimulus into the market, offering consumers a greater availability of independent advice.

The FSA calculates that adviser firms could save £3,000 a year simply by only having to hold records for 15 years but that is just the start. Many investors have held back from investing in IFA firms and advisers have had difficulties selling on their businesses due to concerns about indefinite liability. Levels of PI cover could also be reduced.

The FSA may be worried about a backlash from the consumer lobby if these changes were brought in but surely 15 years is enough time to decide whether an investment has been sold properly. There is also huge concern, and rightly so, about how to judge claims from the distant past and whether blurred memories will always lead to the right judgements being reached.

Advisers are showing their willingness to engage with the regulator through increased professionalism and changing remuneration patterns while simultaneously dealing with the current economic crisis.

As part of its plans to reshape retail financial services, the FSA must think again about the 15-year long stop.

Making advisers subject to this rule will help ensure the growth and stability of the type of well-run, well-capitalised professional businesses the regulator should be looking to encourage through its reforms.

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