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Neil Liversidge: Quest for perfection makes advice unaffordable

We all moan about the FCA, the Financial Ombudsman Service and the Financial Services Compensation Scheme. But in reality the problems of regulation, high costs and all, are symptoms. The root causes are economics, the law of the land and politics.

I have always been grateful for the fact that, as a teenager, I could afford to live dangerously. In 1981, aged 17, I bought my first motorcycle – a Honda H100A – for £406, brand new. Fully comprehensive insurance cost £89 and road tax £6.

I was earning £2,900 a year as a quotations clerk at the old Hill Samuel Life Assurance and the bike was bought from the money I had saved in my first year of working. Biking made me hard-headed, self-reliant and entrepreneurial. I rode solo or with girlfriends all over Europe and soon had friends across the world.

The total on-the-road cost of my bike was £501 – less than 18 per cent of my gross annual salary. It was affordable. Then economics, law and politics intervened.

Margaret Thatcher’s Youth Opportunities Programme crushed wage levels for young adults. Its replacement, the Youth Training Scheme, afforded school leavers the wonderful opportunity of becoming Young Trainee Slaves on £23.50 a week.

The law also changed. Biking had to be made “safe”. We were no longer allowed to live dangerously. Ever more stringent licensing was introduced.

The effect was dramatic. Throughout the 1970s, sales of motorcycles were consistently over 200,000 a year. By 1990 the industry was struggling to sell 50,000.

On the one hand, Thatcher had impoverished the younger generations; on the other, “safety” had made motorcycling massively more expensive. Was it necessary? Certainly, more training was needed before kids were let loose on the road, but it was overdone, with layer upon layer of new regulations.

Fewer of us die with our boots on now than 35 years ago, but there are vastly fewer bikers to die. The overcomplicated licensing system has increased the cost of entry. Generations that would have come into motorcycling have not because the “teen dream” of a bike is now just that: unaffordable and unrealisable.

And therein lies a parallel. As the imperative of removing risk has shrunk the motorcycling community, the same has happened in financial services. The problem, however, is that while legislators cannot abolish risk, neither can they accept that fact, so they make activities ever less affordable.

That is why when politicians pontificate about making financial services more affordable for the mass market I completely switch off. An unending quest for a risk-free environment can only ever make the product and service more expensive.

Two and two will always make four and five beans will always make five, however creative the accountants. Regulatory costs in any industry will always end up being paid by the customer. That is the simple economics.

Neil Liversidge is managing director of West Riding Personal Financial Solutions 

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. “Fewer of us die with our boots on now than 35 years ago, but there are vastly fewer bikers to die”.

    That is indeed the case. I’m sure you know what we motorists call motorcyclists – organ donors.
    The regulations since the early 80’s actually stopped many from killing themselves. No bad thing. It also happened to coincide with the greater affordability, choice and preference for the car.

    True not everyone could afford a car and were probably better advised not to get a motorcycle as they would be more likely to kill themselves. Their option was then public transport, a cycle or shanks’ pony.

    Your comparison with financial services is thus very valid. Those who can afford the drive do. Those who want the cheaper option usually end up killing themselves financially. Those that can afford neither remain safe and hopefully eventually save up for a car. Who suffers? The motorbike industry. So as in financial services; the ones to suffer are those peddling the less optimal solution.

    A good, if perhaps unintended analogy Neil.

    Where I think you are absolutely spot on is in your denunciation of the sanitization of risk. Investment has a risk. This risk is mainly unquantifiable. Risk changes with time and circumstance. We can all recall when Lloyd Bank was a popular share paying a great dividend and deemed to be very low risk. As was BP, Polly Peck and goodness knows how many more. Sure, we know that Emerging markets are dicey as are Congolese floating rate notes. However, for mainstream ‘sensible’ investments the regulator should appreciate and clients should know that everything has a risk and if you don’t want a risk don’t invest. Keep your money in cash and risk it being eroded by inflation, stick it under the mattress and risk a burglary. Be foolish enough to invest in Gilts and end up with a face full of egg. This constant harping on risk gives employment to the Jeremias and provides excuses for those too timid to provide decent advice. That is not to say that recklessness is advocated. There are measures to ameliorate risk to an extent, but it is never defeated.

    As you so rightly say – life is a risk – live with it.

  2. This article seems to be more about motorbikes than about how the costs of FS regulation have made advice so expensive that people of modest means can barely afford it or, if they can, they blanche at how much we need to charge.

    That aside, the sentiments you express here Neil aren’t original ~ for a good few years, I’ve been citing the FCA’s maniacal obsession with perfection (only in others, mind, not themselves) as the primary cause of the advice gap and the reason for an atrophying adviser population. The pot of gold at the end of the rainbow ~ remember?

  3. Get a bike Julian. And get a life while you’re at it.

  4. I have a bike ~ a push bike. I just don’t go on about it.

  5. The seeking of perfection is a pointless exercise. The removal of risk is another equally fruitless quest.

    Sadly, we live in an age where dumbing down to the lowest common denominator is rife. You only have to turn on the television to see this in action.

    Of course, if we advisers fail in our pursuit of perfection for our clients (many of whom may shortly appear on the Jeremy Kyle Show) then the FOS is there to sort out their woes and even add a few hundred quid for the inconvenience caused to them.

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