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FSA partly to blame for TCF failures

I have some reservations over the FSA’s treating customers fairly initiative – not the concept, just the initiative – but I had to do a double-take on the article headlined, FSA warns of enforcement action on TCF.

It appears that after nearly two decades of regulation, the regulator seems not to have managed to get a grip on ensuring that, as a matter of standard practice, IFAs undertake a full review of clients’ needs and objectives, by completing a thorough fact-find, before formulating recommendations.

How can two-thirds of adviser firms, subjected to this latest survey, be ignoring such a basic requirement?

Evidently, the time and expense of roadshow presentations, self-assessment tools and website guides have failed. If we are to take at face value the findings of this survey, then most of the industry is determined to ignore such requirements or there must be a failure in the way in which the FSA has communicated them.

I suspect the blame lies somewhere between the two, which indicates that not only is the FSA short of understanding the industry it regulates but also that it is unable to communicate its requirements to those it seeks to regulate.

Basic and sound procedures for TCF do not need to be complicated or difficult to articulate. It could be put in a reasonably compact handbook – something slimmer than 1,000 pages. Those who disregard proper regulatory guidance should be held to account.

The issue is whether or not proper regulatory guidance is what has been published. TCF seems to be more a measure to enforce an over-complicated, inadequately defined and poorly communicated set of procedural requirements, than an effort to articulate what those requirements are. This is surely the wrong way of going about what the FSA claims to be trying to achieve.

Perhaps the FSA might consult the networks and big IFA businesses about how better to communicate its needs to those it regulates and how to enforce those requirements fairly, instead of finding fault with failings that may be as much of its own making as those of the practitioners that it seeks to regulate.

A good place to start would be to agree a practical and easy-to-use format for a financial adviser’s hand-book of good practice, divided up into chapters on each class of business. It also needs to be usable in the real world, dealing face to face with real people in real situations. A looseleaf format with periodic updates could work well.

The circumstances of each client are often unique but a properly thought-out handbook should at least provide the basic building blocks of good advisory practice. After all, better business procedures benefit everybody and the fact that, after 20 years, an apparently high proportion of the industry is still failing to observe even the most basic requirements of what most people would recognise as sound practice must surely call into question the effectiveness of a regulator whose raison d’etre is supposed to be improving the way in which we advise members of the public on their financial planning.

The problem is, as always, that if there is an easy way of doing something and a hard way. Will the FSA ever learn?

Julian Stevens
Partner
Harvest IFM, Bristol

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