Interviewer: I would like to start, if I can, with first principles and go back to the Fin an cial Services Act and the principles of polarisation. What is your view on this?
Darling: Well, we have got polarisation and, by and large, people are happy with it. I feel that in the last few months there has been a move by some to get rid of it but, unless anyone can make out a reason for changing the present system of polarisation, then we do not propose to change it. We strongly believe that if something is working, that isn't actually broken, then you should not attempt to fix it.
Interviewer: From that, we take it that you are fully committed to the principles of independent financial advice or am I putting that a bit too strongly?
Darling: I think that independent financial advice is abs ol utely essential. People should have the choice to go directly to a provider, if that is what they want to do, but independent financial advice is of crucial importance. More and more people in the future will want to make provision for themselves and they must have the opportunity to go to somebody who has no particular axe to grind and who will tell them first what they need and on occasions whe ther or not they need any help at all.
So, the IFA sector we reg ard as of great importance, cer tai nly for the country as a whole.
Interviewer: A lot of IFAs are small businesses and they feel themselves up against the big battalions of bank insurance and bigger insurance compan ies. What sort of encouragement can you give small businesses in their battle?
Darling: There are two things. In the last two or three years, there has been a tremendous structural change in the ind ustry. The bank insurers are beginning to develop in a way you would not have thought three or four years ago and we will certainly ensure that in the future there is genuine competition available within the UK. We are not going to see the industry swallowed up by the large producers squee zing out everybody else.
The second thing we can do that will help IFAs, particularly the smaller ones, is to ens ure the regulatory burden is not so oppressive that it actually drives them out of bus iness. If people want to go and get financial advice, it is important there is the opportunity to do so and I am inc rea singly concerned that some of the smaller IFAs feel they have either got to amalgamate to absorb some of the overheads or, alternatively, simply be driven out of business bec ause of regulatory pressure We want to avoid that bec ause, as I said, it is important that, wherever you live in this country, you have got the opp ortunity to get that independent advice.
Interviewer: Some would say that disclosure is not particularly even-handed at the ext remes of the financial market, stockbrokers on one hand and building societies on the other. Where would you stand on this?
Darling: Well, there are two things there. First, I think that as a general principle there should be as much disclosure as possible but I entirely agree that, if you have to disclose the costs of the sale of a pension, you should also have to disclose the management fees on a Pep, for example, otherwise the system is simply not fair and is one of the many examples where the regulatory regime is irrational. I think that needs to be looked at.
But the problematical part about disclosure is this – what we are trying to do with the regulatory regime is try as far as we possibly can to put buyer and seller on an equal footing and to ensure that the buyer deals with the seller in an atmosphere of trust bec ause, if there isn't trust bet ween buyer and seller, you are not going to get the sale that all of us would like to see.
So I think it is very important we ask ourselves of disclosure, is the person buying the policy being given suffici ent information to know what it is they are doing so they can make a genuine choice and to balance that with the risk that they have been given so much information that it is utterly meaningless. It is rather like, if you hire a car, you simply sign at the bottom line without reading any of the 200 regulations before it.
There has got to be a balance but I think openness and transparency in creating the right capacity of trust is the only way in which you can get people to competently deal with the industry.
Interviewer: Does that mean you think some more changes are obligatory in departments that would be a concern to IFAs who have just got used to this new regime that we have?
Darling: I believe that, whoever wins the next election, the Financial Services Act is going to be reformed. Our starting point is that we do not want to tear up all the imp rovements that have been made, we want to build on where we are now and we will only change those things that we need to change.
I mentioned the irrational nature of it because the system compels disclosure in one place and does not in another. It is also distorting the market to some extent.
I think we have also got to ask ourselves, fundamentally, how does the compliance system work? I have long said that the way to judge whether or not good advice is given is not by reference to whether or not a special number of boxes are ticked but by reference to the general nature of the general quality of advice given.
That is why I would like the regulatory system to concentrate on training and compet ence, on building a prof ession, so that, as I said, people trust their financial adviser the same way as they trust their doctor or their child's teacher.
If we do that, then I think we can do a lot to remove the oppressive burden of regulation where people have to tick endless boxes and comply with endless rules that do not actually achieve the end result, which is that atmosphere of trust and confidence that the public and the industry wants.
Interviewer: What specific encouragement would you give when pension products, for example, are not so much bou ght but sold and very complex financial analysis needs to go into the consideration of the right product for the right sort of individual?
Darling: I think things are changing. We want to promote a culture where people save in the short, medium and, of course, the long term, which is what a pension is. If that is going to happen, there are a number of things that are necessary.
There has got to be the app ropriate economic stability bec ause, if people think their savings are going to be eaten up by inflation, they will not save, so you got to have economic stability. You also have to enc ourage people through the tax system and that is being done. It is very complicated at the present time and I think we need to make some sense of that but we do want to encourage people to make provision for themselves, as I say, especi ally in the medium and long term.
Of course, we have to get the right regulatory system so that people are confident with the industry. I think the other thing that will concentrate people's mind is that they know we are going into difficult times and common sense tells you that you have to make provision for yourself if you can.
The Government also has responsibility, as a whole, but it is those people that can be encouraged to save or ought to be encouraged to save that are very important. You have got to change the culture and the Government can help that by conducting its own econo mic affairs app ropriately and providing the appropriate and fiscal terms and by other means encouraging people to save.