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FSA loses sight of issues with bank plan

The FSA is inviting banks to devise a fee-based solution to serving the mass market.

The carrot is that the regulator is unlikely to view any subsequent complaints as misselling. The FSA’s director of wholesale firms Dr Thomas Huertas says banks would need the comfort of not being the victim of retrospection by a future regulatory regime.

It seems to be saying that you cannot missell as a fee-based adviser. This newspaper reckons you can, although it might be less likely. You can certainly overcharge. Within Dr Huertas’s speech, he appears to be saying that if you take commission, then you should not be surprised if retrospective regulation applies. The harshest take on these comments would be that you are guilty until proven innocent.

But the FSA promised no more retrospection years ago. How can it offer no retrospection as a carrot to banks when it has supposedly been its policy for years?

Money Marketing also wonders why banks would be interested in providing such a service.

Any answer from the banks will be interesting, to say the least. We humbly remind Dr Huertas of banks previously offering stakeholder in tie-ups with life offices adhering to the wonderful 1 per cent charge cap while the other part of the deal was letting commission rip on bond sales.

It is also easy to say yes – to play the regulator at its own lobbying game – that is, let it knock the stuffing out of IFAs in the meantime – and then not bother to market the service.

Finally, we counsel Dr Huertas on precipice bonds. They paid generous commission, were expensive and were distributed by some advisers and banks but they were probably not missold because of commission per se but as a means of getting people into equity investment at a time when the bear market had scared them off. They were a hazard because advisers were looking to replace other product lines as they fell out of favour. Commission was a factor but that hazard would certainly apply to fee-charging bank service looking to justify its existence and its fees.

Dr Huertas should be careful of what he wishes for.

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