Do you know it has taken me pretty much 17 years in this business to properly understand the true pecking order in the regulatory melee?
I suspect I really knew all along but I now understand that it is purely a political process – nothing more, nothing less. There was me thinking that the previous “regulators” – Fimbra/Lautro/Imro/PIA – were top of the food chain. All along, I blamed them for a string of seemingly stupid manoeuvres. It seemed that financial services were being hauled over the coals for the sadistic pleasure of a bunch of civil servants.
However, it has become more and more obvious to me that the real Great Whites are politicians, who have their own agendas, and who need to be seen to be doing something about the latest political whim.
Often, it appears to be a reaction to some sort of directive from Europe. Whatever the motives, this is fed to the current enforcer who, in turn, has to be seen to react, regardless of how pointless the subsequent rule turns out to be.
Next in the food chain is the feckless scuba diver (the FSA) who likes to think he is in control but is not really.
Then we have the bloated whale shark (banks) who look like they could well be in control but are too cumbersome to make much of a difference. Big lobbies, but it doesn't fool anyone; looking all scary but simply feeding off plankton.
Next up are us jellyfish (IFAs) who are, of course, spineless, shoaling together in great clumps because that is all we can do, carried along by the currents whichever way they take us.
Last, but by no means least, we have plankton, the bottom of the food chain – the hapless consumer. Scared whichever way they look and with no means of protecting themselves; completely at the mercy of their surroundings but ultimately the engine of the whole system.
Recently someone said to me that if we were honest, the smaller style IFA was effectively just a cottage industry. It had to be easier, he reckoned, to regulate and control (or be seen to control) a few large beasties than shoals of one and two-man bands. I can see his logic, but cannot help but disagree.
The FSA – which I now understand is charged with the task of responding to political whims and rhetoric – should ask itself which type is more benign.
Logic tells me it is the cottage industry style of IFAs, who build up a life-long client base and who are much more emotionally accountable for the advice they give compared to the “nomadic” style of employment through a bank.
Banks drive people on with sales targets and threats – they may claim only to pay basic salaries but they still monitor staff under a microscope and dispense with their services if they do not make the required sales.
We, on the other hand, do not monitor sales performance (other than for compliance purposes, of course) and have never had targets. I have no doubt we could increase turnover by having targets and incentives, but it is not the way we work.
The smaller the company, the easier it is to run this style of “sales”. There is never any pressure as such and it is always a team effort.
Make the adviser firm larger and you have to monitor performance, as it is easy for malingerers and under-performers to catch a free ride. Larger firms that operate this style have a bigger turnover of staff so employees feel they have no personal commitment to clients. Why would they, if they will be moving on soon?
Give someone a personal and lifelong commitment to clients and ethics improve. By making them, in effect, personally and emotionally accountable for their advice they will be more likely to worry about the advice given and not next months mortgage.
So, small is not necessarily bad (or at least no worse than big) and simple is good. If the regulatory regime can only be made simpler, we should be on to a winner.
The current consultation process is a good example. How can anyone can claim this is a healthy dialogue between regulator and industry? On many an occasion I have been inclined to reply to an FSA Consultation Paper, only to give up as I have no hope of researching it fully in order to make a worthwhile contribution.
I seriously do not think the FSA or Treasury want to get rid of smaller IFA practices – because of circumstances, it just seems that way. If they could only just acknowledge the fact that smaller-style IFA firms can be good for the consumer, it would go a long way to dispel the invading paranoia.
Tom Kean is compliance officer for The Analysts