When the FSA rushes out a consultation paper with a very short response date, it is a pretty good indication that it knows it has yet again been caught asleep on the job.
All too often, this seems to occur on complex issues involving evolution of the advice process. Last January, the regulator produced its guidance consultation on assessing suitability, which allowed all of three weeks for industry responses.
Two months later, it published final guidance which, while raising some valuable issues, fundamentally failed to address perhaps the most crucial subject – what to do when the client has unrealistic expectations.
At the same time, the FSA enshrined a requirement for manual review of any system- generated analysis, in so doing, effectively killing off any serious prospect of delivering simplified, low-cost advice.
This will, in practice, deny millions of consumers a level of consistent, suitable low-cost financial support that is entirely achievable if only we had a regulator with the capacity to understand the present state of science and technology.
The latest area where the FSA feels the need to constrict the ability of the industry to respond, having doubtless already decided what it intends to do, is its consultation paper on pension transfer value analysis assumptions CP12/4.
It is noticeable that the regulator acknowledges that it has “pre-consulted” certain organisations.
This is a case where the FSA has raised many reasonable issues. Much of what is proposed appears logical but in certain areas, the consul-tation is flawed and, if pursued in the current state, will lead to confusion in the marketplace and a lack of clarity for consumers.
Why, for example, does the regulator explicitly state that advisers should start with the assumption that a transfer is not in the interests of the consumer? Would not a fairer and more objective starting point be to assume that the issue needs to be examined impartially?
I can understand a situation where it might be suggested that certain small funds might be assumed to be best left in the current scheme as the cost of the analysis could undermine the gain achieved by any transfer process but is it right to prejudge every case before an advice process starts?
For a regulator that is so insistent that advisers should be able to clearly demonstrate why a specific course of action should be taken, I struggle to understand why they seem to object to a mechanistic approach to transfer analysis.
One might have hoped that by now the FSA would have realised its RDR process will take affordable advice beyond the reach of millions of consumers and by further entrenching the need for subjective analysis, it is simply piling ever increasing costs on the consumer.
To me, it is quite clear where the problem lies. The FSA does not have a realistic understanding of what can be achieved today through the use of technology. As long as we have a regulator with a 1980s’ mindset, we can never achieve the 21st century financial solutions that consumers need and deserve.
The regulator needs to understand that mistakes invariably occur as a result of human involvement whereas machines can be programmed to be impartial.
Clearly, the requirements of this latest FSA activity will place considerable burden on software suppliers O&M Systems, SelectaPension, Distribution Technology and others which supply software solutions to help advisers in this area. The consultation will almost certainly delay the launch of other new systems being developed in this area. It will take time for system suppliers to accommodate new regulatory requirements but there are really no reasons why such systems cannot be adapted to accommodate them.
It would be helpful if the FSA were to allow a reasonable timescale for such new pro-cedures to be implemented but as it clearly feels it has been caught on the hop, it would appear this is unlikely.
If we move to a situation where advisers do not adopt a thorough, structured and, yes, mechanistic approach to such cases, it can only be a matter of time before we will start seeing enforcement notices stating that advisers were inconsistent in their approach. The more it is possible to structure and automate processes, the more that costs can be reduced.
The FSA cannot see this as a good thing and that is worrying. Technology is capable of delivering analysis way beyond the ability of humans and can be harnessed to convey complex issues in simple steps and measure the level of human comprehension. Such processes should herald the new low-cost advice era that at least some parts of the FSA aspires to.
Last year’s assessing suitability guidance set the cause of delivering very low- cost advice to consumers back BY at least five years by failing to properly comprehend the extent to which technology can help.
It is to be hoped that before producing its final conclusions on what will be acceptable for pension transfer analysis, the FSA takes the opportunity to fully understand the extent to which leading- edge technology can assist not only with the analysis of information but how the underlying facts, both soft and hard, can be captured impartially.
If it lacks this understanding, as it would appear to do, it should become a priority for the FSA to gain such knowledge before enforcing further avoidable expense on consumers.
Ian McKenna is director of the Finance & Technology Research Centre