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Fsa sets a high standard

In the aftermath of the avalanche of FSA documents released on March 26 covering the RDR and platforms, I am spoilt for choice in terms of subjects to comment on this week. Many of these issues will be explored here in more detail in coming weeks but this week I would like to share some initial thoughts and a couple of pointers that I think people should keep an eye on.

My overall reaction to all I have read so far is that Steve Tully and his team on the platform review have done some excellent work. While not necessarily agreeing with everything they have put forward, overall, the industry should welcome the depth and diligence of the analysis.

Two weeks ago in this column, I called for the FSA to give us a clear indication of what they are looking for and they have certainly done that. If more FSA reviews documented issues in the way the platform work has been executed it would be an enormous benefit to the market. If this is the template for the future, can we have more please?

In particular, I found the examples of good and bad practice valuable insight and I think it is especially important to applaud the development by the FSA of the suitability and disclosure template.

This will not necessarily cover all issues that firms should address but I cannot remember another situation where the regulator has been so specific about issues it expects to see clearly documented. Although it is not saying it is mandatory to use the template, it is hard to see why an adviser would not use it, or at the very least the issues raised, as a core part of their advice process.

It is clear that while the FSA is putting in place a regulatory back stop in requiring mandatory re-registration by the end of December 2012, for all practical purposes, an adviser firm is going to need a very strong reason for recommending any platform not offering such facilities now in respect of new customers.

Given all that has been written in these documents about the adverse impact of a lack of re-registration, who would want to have to justify such a recommendation if they have a compliance visit?

I also find the clarity on the need for using more than one platform, unless an adviser’s proposition is targeted at a single segment of the community, welcome. In an industry where advisers are so passionate about independence I have never understood why having a single platform was seen as any less tied than any other form of restricted advice.

We are going to see a lot more consultation coming out of the FSA on the RDR and other issues over the coming months. A further consultation paper on platforms is planned for the summer with a policy statement and draft rules by the end of the year. Consultation on the remuneration of individuals is identified for the second quarter of this year, with proposals on collecting data on the nature of advice, independent, restricted and non-advised, possibly including data on adviser and product charges and perhaps data on consumers, are scheduled for the third quarter. Consultation on product sales data for platforms is also due this summer.

I found the examples of good and bad practice valuable insight and I think it is especially important to applaud the development by the FSA of the suitability and disclosure template

Also identified is a planned consultation on how vertically integrated firms, that is, providers, should separate product and advice charges although no date is specified.

In addition, a number of thematic reviews are identified including measuring firms’ transition towards 2012, so it is clear that firms must be able to demonstrate what action they are taking to prepare, as well as a similar study on financial planning tools.

There are going to be some very busy people at Canary Wharf in the coming months and I hope they maintain the high standard demonstrated in the latest papers.

With all this new documentation, regular due diligence reviews of platform activity must be a core part of any adviser’s processes. The processes need to identify how they have taken account of all the latest regulatory updates and be repeatable on a regular basis, probably six-monthly.

If there is one thing that really concerns me it is the obviously negative perspective the Financial Ombudsman Service seems to have to the whole idea of the evolution of the advice market. The FSA is being polite about it in PS 10/6 but it is quite clear that simplified advice has come to ground on the rocky shore that is South Quay Plaza.

Until such time as the FOS comes down from its ivory tower and recognises there are some situations where the cost of looking at every possible scenario can exceed the value to the consumer, it is never likely to be commercially viable to put in place the sort of economic, low-cost guidance services needed by millions of consumers. This is an obvious way to facilitate online guidance and also more economic forms of face-to-face support.

In practice, the ombudsman service is actually undermining the financial needs of millions of citizens while at the same time perpetuating an environment, where, in reality, a very wealthy few benefit not so much from financial advice but a financial guarantee.

There has been much talk of the abolition of the FSA if the election leads to a change of Government. On the evidence of much of the latest

DR and platform documentation, the FSA may be learning lessons. The FOS, on the other hand, is probably doing more damage than Lehman Brothers to the financial wellbeing of the vast majority of voters. Any Government that cares about its electorate would, in my opinion, be well advised to distribute P45s to the entire team as soon as possible.

Ian McKenna is director of the Finance & Technology Research Centre


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There is one comment at the moment, we would love to hear your opinion too.

  1. Good and timely comments, particularly on the FOS guarantee scheme, the new head person doesn’t want to talk about it.

    I wish you had also picked up on the FSCS guarantee scheme.

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