The trade body must spell out the kind of fast, aggressive, targeted regulation the industry needs
It seems hard to imagine but this month marks 27 years since I started writing for Money Marketing. I still remember my first front page scoop: the merger of two financial adviser trade bodies into a single entity – Nfifa – headed by Garry Heath, then at the height of his powers.
Ah, yes, poor Garry. Once upon a time, no edition of Money Marketing was complete without at least one story of him and his Nfifa chums banging on about something or other. Today, he limps gamely on at Libertatem, publishing reports that no one cares enough about to even bother disagreeing with him over their message.
His place has been usurped – if that is not too strong a word – by Pimfa, an organisation that sounds more like an oil-filled radiator than a trade body for advisers.
At least Pimfa’s name made the pages of Money Marketing the other week, as its director of regulation Ian Cornwall earth-shatteringly told us the Financial Services Compensation Scheme levy “is a major burden cost on all firms large and small and is considered by firms to be a cost of regulation – the current levy of levies is unacceptable and not sustainable”.
Cornwall’s solution? “The FCA’s approach must be more proactive in quickly taking action to address the root causes of the claims that result in these unsustainable levy increases.”
Does that sound like a call on the regulator to take tougher action against rogue firms whose activities not only stain the reputation of the majority of honest advisers but impose massive additional costs on their businesses? Shorn of its circumlocution and impossible-to-understand verbiage, it sounds suspiciously like it.
If so, this would be a remarkable turnaround from the old-school refusal of advisers and their trade bodies to countenance the idea that a regulator might ever have a role to play in protecting not simply consumers but the industry itself.
Nor are we talking that far back. I still recall the howls of outrage when FCA chief executive-designate Martin Wheatley commented in September 2012 about “shooting first and asking questions later” when referring to enforcement action he aimed to take against miscreant firms.
Whereas the regulator could previously only act against a director if they were “knowingly concerned about a contravention of the listing rules”, the FCA talked about publishing warning notices at an earlier stage and using its powers to intervene far more readily.
Six years on, we all know how well that strategy worked, with the advice sector since then scarred by levies totalling upwards of £1bn for the life and pensions and investment intermediary classes alone.
Many of these claims could have been avoided had the FCA followed through on even a tame version of Wheatley’s “shoot first” promise. There was no follow-through and in the end the industry lobbied successfully for his contract not to be renewed by then-chancellor George Osborne when it expired three years later.
What was striking during that period was the incredible animus from industry figures towards the FCA’s mildly more aggressive stance. Even the basic premise of regulation was questioned.
I remember in October 2012, Informed Choice executive director Nick Bamford quoted FSA figures to the effect that a £500m additional cost of regulation would only prevent consumer detriment worth £500m a year.
Nick’s argument was that, regardless of what the regulator did, his business would still offer the same consumer-focused service it always did. So would the majority of IFAs he knew.
Therefore, assuming detriment always remained at the same level, would it not be easier to do away with regulation itself, thereby saving £500m?
Applying the same theory in other areas of public life could lead one to argue that scrapping the current police budget and just insuring against crime would be far cheaper, because crime levels would remain broadly the same as they are today.
And, as a Brucie bonus, just think of all the inner-city households whose night-time beauty sleep would no longer be disturbed by the wail of police sirens.
Against that, I argued at the time that a lack of public trust in the industry harms everyone in it, both good and bad.
Therefore, firms like Nick’s own will continue to pay the very real price for the actions of a minority in the sector.
Unfortunately, scrapping regulation instead is not a short cut but a dead end.
That argument still holds true today, even as some advisers are belatedly prepared to consider that there is a benefit to tougher regulation – as long as it applies to someone else’s firm, not theirs.
That is not good enough. If Pimfa wants FSCS bills to fall, it needs to come off the fence and spell out clearly the kind of fast, aggressive, targeted regulation the industry needs, in areas where consumer detriment is more likely to happen.
Without that clarity, Pimfa is doomed to become as irrelevant tomorrow as Garry Heath is today.
Nic Cicutti can be contacted at email@example.com