So, the acceptable face of the FSA, David Kenmir, has become the unacceptable face in record time – at least among advisers.
The managing director was highly rated by the industry for his relatively smooth handling of the PI nightmare which probably stopped some firms going to the wall and allowed others to manage a transition to a network or support services company, where PI could be maintained more easily.
But Kenmir has fallen dramatically in the popularity stakes with his warnings about IFAs being fined or losing their licences to trade. So, what is he – hero or villain?
The answer is probably not all that straightforward. In his defence, Kenmir did warn at Money Marketing Live in May that IFAs were taking too much money out of their businesses, leaving them exposed to unexpec-ted financial stresses.
His list included threats of VAT rises, PI costs and regulatory fees for the compensation scheme exacerbated by phoenixing firms. But in the last two weeks, he has not handled the fees issue well. First, a distinction should have been made between three groups – advisers seemingly unwilling to pay, those paying by direct debit, although presumably about to get a massive shock to their business accounts, and those which cannot pay. The remarks – no doubt intended to get advisers to pay up quickly – smacked of scare tactics.
The dual threats should not have been made without at least some suggestion of compromise. The FSA should show some flexibility and allow fees to be paid in instalments. This may seem unfair to those firms which have paid but surely that unfairness is more acceptable than forcing many firms out of business.
Part of the reason the FSA may have got it so wrong is that it believes the fee issue is not really its problem and that it is one for the compensation scheme. Canary Wharf, in this case, is a glorified debt collector.
Kenmir is one of the smartest, sharpest and approachable people in the regulator but debt collection is not in his skill set and while he may be approachable, he is still a regulator – a member of a tough organisation which has always strained the princ-iple of fairness because the interests of the consumer have to be put first, even at the risk of consumers abusing their right to complain.
The other accusation that IFAs can legitimately level at the regulator and the Treasury is that the increa-ses in PI cover demanded by the European Union are partly their fault. This was not a failure of IFAs to plan effectively but arguably a failure by Government bodies, including the FSA, to get their point across which meant a strained PI market became even more and pro-bably unnecessarily expen-sive. IFAs which struggled but just managed to meet their PI expenses may find fees to be the final straw.
Of course, calling Kenmir names will not solve anything. In this instance, he has been unfair but it is not too late – he should allow payment by instalments.
The product providers must also shoulder some responsibility. Money Marketing will be questioning them in the next few weeks as they have been caught off guard by the scale of the increases and the impact of capping the subsidy.
In reality, when the PIA's regulatory requirement to have a cross-subsidy was removed, the subsidy was immediately in jeopardy. But it was one of those rule changes where the effect has been underestimated. Making noises about distribution businesses having to stand on their own two feet is all very well but the bear market has meant several of the biggest insurers facing technical insolvency. IFAs, for their part, have not been afforded a lot of slack.
Those close to this pro-cess tell us that providers are surprised about the reaction to the end of the subsidy but its expected disappearance next year means they are behaving as if polarisation is already a thing of the past. They should realise that the transition period has ended too early and extend the subsidy, otherwise their distribution is going to suffer again.
For the providers to walk away from the sort of joint responsibility they have accepted in the past seems unfair, too. At least they should strongly consider keeping cross-subsidy res-ponsibility for the pre-depolarisation sales.
Finally, the regulator, providers and IFAs should be working together to ensure that failing and phoenixing firms do not bring down other better-run and more ethical advice practices. That would be the greatest unfairness of all.