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More power to the people

Persistent rule changes and rising regulatory costs are driving advisers out

Given that we have not yet seen the promised forest of home wind turbines sprouting up on every household, I was attracted to a recent headline in the FT concerning potential power shortages.

It is surprising how often analogies can be drawn between a totally unrelated industry and what is taking place within the world of financial services.

The article referred to a study of the European energy zone and the parlous state that exists currently with concerns as to the future. It focused on the potential for blackouts or “brownouts” – a reduction in supply voltage.

The survey highlighted the changes in lifestyle that have affected the industry – from a consumer demand and regulatory perspective.

As we enter late autumn, one can see the demand for energy rising. However, the exponential growth of air conditioning is turning the demand to different seasons – namely, the summer.

One of the chief concerns highlighted was the lack of new investment as a result of planning issues, but particularly Government’s persistently tinkering with regulatory frameworks. Indeed, the author of the report stated: “How can companies plan for 10 or 20-year return on investments when governments keep changing the rules of the game?”

Enough of electricity, but one can see the correlation with the financial services industry, where 20 years ago the prospect of self-regulation was moving from concept to reality. Life does not, and should not, stand still. That said, the underlying principals of saving and protection do not change, and it is the manner in which individuals meet and plan for their objectives over time that reflect the progress made. What does not change is that most plans take a long-term commitment.

The Government’s budget requirements also change over time and this sets the agenda for taxation requirements that need regular fine-tuning to meet changing needs. This is relevant in the area of pensions, which require detailed advanced planning.

What is most objectionable is that clients and advisers are being left in no man’s land due to the confusion surrounding legislation that has only just been introduced. It is not good enough to conduct a full consultation process, then introduce legislation and within less than six months revisit one of the most fundamental pieces of the “simplification” process.

Similarly, the continued kite-flying with regards to the possible removal of pension lump sums has brought forward the decision to draw down benefits for those who have established funds. Also, perhaps more importantly, it is dissuading others from making a long-term commitment that is in their best interest. When it comes to the issues of means-testing and the interaction with the proposed NPSS, just how are advisers supposed to handle regulatory matters?

We also have the proposed changes to principal-based regulation, where the boundaries are in danger of becoming so blurred that I, for one, would not want to end up being a disciplinary test case when the issues will become subjective.

In the same way that we are in danger of running on empty with regards the supply of electricity, investors are likely to find the availability of effective financial planning advice difficult to come by as advisers will have been driven out of this market due to regulatory costs.

It is a sad day when one cannot advise on a simple £50-a-month savings arrangement as this is no longer feasible within the current regime. This type of client is the future grassroots for the high-net-worth investor and many may miss out on attaining their goals due to legislative issues.

What the National Audit Office will make of FSA remains to be seen and the recent statements regarding a reduction in regulatory burdens offer a glimmer of encouragement. My hope is that there is some light at the end of the tunnel.

Nick Conyers is a consultant at Pearson Jones

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