Most of us who have been in the financial services sector for any number of years are familiar with “the law of unintended consequences”.
In the endeavour to make the world a better place often what happens is that the outcome is the opposite of what was intended. Teresa Fritz, a member of the Financial Services Consumer Panel, has called for regulatory fines to be applied to fund a national advice network to help bridge the post-RDR advice gap.
She argues that funding such a network from FCA fines could build a quality guidance service potentially as an additional layer of the Money Advice Service. It does not take a genius to see what unintended consequence has emerged here.
The advice gap is described as “post-RDR” so I think it is safe to conclude that Fritz understands that the problem has been caused by the RDR. What element of the RDR caused the gap to emerge? With an ever increasing costs base, partly related to increasing regulatory costs, quality impartial and independent advice has been priced out of the range of good number of people.
So having created the advice gap problem (wasn’t this noticed during the RDR consultation phase and if not why not?) we now have to come up with a solution. I have more questions than answers as far as Fritz’s suggestion is concerned such as;
- What does she specifically think caused the advice gap? (Can someone from the regulator help her with that answer?)
- If the advice gap is to be funded by FCA fines won’t that incentivise the FCA to fine more firms?
- Shouldn’t such a service be funded by the taxpayer?
- With the MAS already demonstrating it isn’t fit for purpose, does it make any sense to add “layers” to it? (Doesn’t the adage “never reinforce defeat” ring true here?)
- Isn’t there already in place a perfectly good distribution of advice system (they are called independent financial advisers)?
- Why can’t the FCA fines be recycled back to IFAs to pay them to deliver the advice?
- Why does Fritz think the focus should be on “getting people to the point where they understand what products they have to buy”?
- Isn’t that sort of guidance exactly what the MAS was meant (but has failed) to be doing?
- If the adviser who receives the referred client has less work to do can she tell us exactly what “even less work to do” (cheeky comment from her by the way because I seriously doubt she has a clue what work an adviser has to do!) means?
- If the new “layer” gets the client to the point where they understand “what product they need to buy” pray tell why they need an adviser?
- Will the new “layer” take regulatory responsibility for the advice or will that remain with the adviser? (if the latter price won’t be driven down much)
In our firm we often come up with innovative new ideas. Very often they don’t progress to any kind of active business service, but the work involved in developing them is disruptive. I think Ms Fritz has just entered the world of “disruptive innovation”.
Nick Bamford is executive director at Informed Choice