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Nic Cicutti: Adviser trade bodies are risking irrelevancy

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.

FSCS levy hike backlash throws doubt on FCA supervisory control

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.

Pimfa: Regulation changes bring chance for more diversity

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.

Pimfa calls for suspension of Priips regime

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 nic@inspiredmoney.co.uk

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. No comments bar this Nic – so looks like your irrelevant too!

  2. After 27 years we still get the same old soundbite and drivel – if that is not too strong a word – by Nic Cicutti, a writer who sounds more like a dating site for hens than a journalist for advisers.

    Seriously, Nic, you are better than this…

    • @ Grey Area: I’m slowly coming round to the view that describing another person’s opinions as an “old soundbite” and “drivel” – while refusing to engage in the discussion around those opinions – is an ignorant act. What’s your take on this?

      • I agree and pretty sure irony is not lost on you either…

        Describing PIMFA in the way you did is hardly a high point of journalism is it? To be effective in getting regulatory change, trade bodies need to engage constructively with the regulator.

        I happen to know that PIMFA engage regularly with the FCA, sometimes it can be helpful, sometimes it can be incredibly frustrating. However, there is more likely to be progress through dialogue and nudging, than shouting or public rants.

        Have you actually had a conversation with Ian Cornwall and asked some questions and discussed how, and how often, they work with the FCA? You might be surprised.

        Lastly, if you were offended by my parody of your prose I apologise. Compliance officers and wit… doh, my bad.

  3. Sure, I’ll spell it out: 1) Immediate response and feedback to those who blow the whistle on crooks, scammers and disaster-in-the-making merchants, with it being made clear that those doing so maliciously will face a serious sanction. 2) ‘Unregulated’ should mean ‘Not eligible for FSCS compensation’ even if it was sold by a regulated firm. 3) Unregulated investments only to be sold to those clients who have had the risk warnings delivered to them in person by a third-party law firm, in a similar fashion to the way probate oaths are sworn (typical cost £5). That way they can’t say the seller didn’t warn them that FSCS cover did not apply. 4) Proper investigation of disasters where there is at least a prima facie case that it was not bad judgment but securities fraud. None of these are difficult, they just require the WILL to make them happen. The regulator lacks the will.

  4. I usually do not respond to Nic as he is a wind-up merchant

    All Trade Associations are only as good as funds that they create. Money buys influence, why do banks pay 300m euros a year on lobbying? It pays.

    When I was at the “Height of my powers” as Nic puts it – 75% of advisers did not join. Apathy was the biggest association.

    Now, over 75% of advisers are still not members of anything except the professional bodies they are forced to join.

    PIMFA inherited what was left of the failed APFA, about 20% of their total income.

    When push comes to shove, on a debate about costs for instance, how much of a voice will the 20% advisers have in that organisation? In contrast, Libertatem is 100% adviser but underfunded.

    Financial Advice is an endangered species. Like most professions; advisers are losing more advisers to retirement than they are recruiting and as a result the costs of FSCS and regulation will strangle the sector in 10 years. But 75% don’t care and never did.

    The Panda is an endangered species and 1,000’s of good people worry about it. But the pandas eat their bamboo and fail to procreate. The day will come, both for panda and advisers when the good people stop caring too.

    There are three current choices One: create a 100% adviser owned body around Libertatem. Two be happy to be in a ghetto of someone else’s body or three and most likely: stay in Apathy and hope the world goes away.

  5. In my view Nic is right, particularly with his reference to these woebegone organisations.

    Any trade body that is unable or unwilling to offer an SPS is a waste of time. That is the only real relevance.

    • It’s difficult, if not impossible, to be both a professional body and an effective trade body at the same time. Whilst interests (and professional bodies are subject to FCA rule requirements) are largely aligned they are not exact and there is the potential for conflict of interest.

      • In my view that is why Trade Bodies have no traction and the FCA will presumably prefer to deal with recognised professional bodies – who actually do to a significant extent look after their members interests.

        I can never understand why it works for Solicitors, accountants architects, engineers and so on, but financial advisers seem to need this split between professional and trade. Doesn’t make sense to me.

        • Not sure about the others but for solicitors the Legal Services Act 2007 requires representation and regulation to be separate. Hence, The Law Society represents solicitors and the Solicitors Regulatory Authority (SRA)regulates them.

  6. I still think Martin Wheatley’s sound bite about shooting first and asking questions later was puerile and ill-considered.

    What he SHOULD have said was that the FCA would take notice of information received, typically GABRIEL data and reports from IFA’s of dodgy practices, then act on it without delay.

    How many posts from IFA’s have we seen here and elsewhere of how they reported something to the FCA only for nothing to be done about it?

    The FCA cannot possibly have been unaware of the industrial-scale mis-selling of PPI over a period of several years, yet did nothing about it. It issued best practice guidelines but then made no effort to check whether those guidelines were actually being followed. Just one focussed visit to one institution would almost certainly have revealed non-compliance and strongly indicated the need for similar visits to others. Why didn’t the FCA do this?

    The scandal of the FCA’s inaction over the Connaught train wreck is still rumbling on.

    For how long did the FCA know of yet, until far too late in the game, take no action against certain IFA’s engaged in production line processes for DPB transfers, almost all of them employing contingent charging?

    And then, of course, we have the scandal of a wayward minority of IFA’s having been allowed, right under the regulator’s nose, to sell wholly inappropriate UCIS and such like via SIPP’s.

    The catalogue of train wrecks that the FCA could and should have taken steps to avert goes on and on. How does this chime with the FCA’s claim, on its own website, to “secure an appropriate degree of protection for consumers” and to “protect and enhance the integrity of the UK financial system”? Public confidence in the integrity of the UK financial system must surely be at an all time low.

    As for our trade bodies, Garry Heath might well argue that, amongst trade bodies, Libertatem is the one that engages more often, more actively and more constructively than any of its predecessors. I have nothing to say about PIMFA.

    Neil Liversidge’s suggestion that unregulated investments sold by a regulated intermediary should be excluded from FSCS coverage overlooks the fact that it’s advice that’s regulated, not products. It’s simply not practical to selectively exclude certain products from the scope of the FOS and the FSCS. Should such exclusions extend to liabilities on the part of the intermediary firm for mis-sales? It’s bad enough that the FCA doesn’t even bother to insist that all firms must hold relevant PII in respect of everything they sell.

    Where would clients stand if they’d been mis-sold something without having been informed that it wouldn’t be covered by either the FOS or the FSCS?

    Not only would selective product exclusions be a recipe for chaos but they’d inflict further damage to public confidence in the whole regulatory system.

  7. Wow! Having your articles/opinions rejected by Garry Heath’s IFA Magazine back in the early 1990s still hurts, eh Nic? Let it go old chap; you’ll feel better in the long run.

  8. “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”

    Spot on Nic. Where I live we rarely see a Police Officer unless there has been a major incident such as a crash or a robbery.

    The Police are a bit like the financial regulators they only arrive after the crash or the crime has been committed and rarely if ever act as a deterrent.

    I think a wider community should pay for a beefed up regulator, you know people like financial journalists. It would be interesting to read their comments if they had some paid for skin in the game

    Nick

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