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Nick Bamford: Time to scrap the regulator?

It seems it  was only  a short while ago that I sat in a Barbican conference room as the FSA explained what would be happening in the change over from FSA to FCA.

I recall sitting on the receiving end of lectures  the thrust of which were that the consumer no longer trusted the financial services sector and that consumer detriment, running into some £500m per year, needed to be addressed by more effective regulation. This more effective regulation by the way  itself costing some £500m per year.

I remember thinking, but not being brave enough to say out loud, what if we got rid of the regulator entirely. Would that not save £500m of consumer cost and probably not result in any greater consumer detriment? I am sure that I would have been firmly put in my place for saying such a thing but I do more and more think perhaps it is not such a crazy idea. You see I actually think that despite the naysayers most IFAs understand that consumers do trust them. They tend to have, in the main long and lasting relationships built on trust.

If the FSA, FOS, FSCS and indeed my friends at MAS did not exist, would I behave any differently? The answer is a resounding  “no” I would still want to “know my customer” to ensure that any advice I gave them was “suitable” I would still want to make sure that I communicated well with them, in plain understandable English.

As we do today I would want to put great emphasis on explaining the “risk” of any product to be purchased or recommended course of action. None of those things would change at all. In fact I might argue that I would actually get better at it because rather than a lot of this stuff being lost in a “paper fog” I might be able to produce much more meaningful executive summaries that the client would have a fighting chance of actually reading and understanding.

Would I change the business approach I have of having multiple pairs of eyes consider each piece of advice that is provided to client? No, that would not change. Would we continue to do CPD and gain higher levels of qualifications? Again none of that would change at all. If a client had a complaint about our advice or service would I reject them out of hand simply because there was no regulatory comeback? Absolutely not, they would be treated exactly the way we do now on those incredibly rare occasions where they express dissatisfaction.

Would our business systems and controls be any different to the ones we work with today? I don’t think they would at all. We would still want to be capitally strong. We would still want to have in place the prudent and sensible insurance coverage that are currently required.

Our pricing model would not change either. We would still want to be great value for money. We would still want to be entirely transparent in the way we charge and the way that our client’s financial products are charged. I honestly don’t think we would change at all if we no longer had the regulatory world that we currently have.

I reckon that this is absolutely true for the vast majority of the IFAs that I know. They run client centric businesses that can be described as “professional practices”. They fully understand that a client treated well, advised in a suitable fashion and communicated with in an understandable and regular fashion is the single most valuable business asset that they have.

The regulatory world needs to recognise that this describes by far and away the vast majority of IFA individuals and firms.

Now do I think for one moment that the regulatory world will agree with me that they are not needed? No, of course not but I believe I have a better alternative. A very simple set of rules is needed about what constitutes acceptable behaviour (the current regulatory environment is simply too complex and too expensive) and this should be regulated by peer review. Does that sound like self-regulation? If it does I will sign up for it immediately.

Nick Bamford is executive director of Informed Choice


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There are 36 comments at the moment, we would love to hear your opinion too.

  1. I’ll sign up too – bang on the money

    Not often I agree with you Nick

  2. I believe you are entirely wrong.

    I have painstakingly drawn up a list of the hard work the FSA have put in since their inception. This includes the financial disaster they have averted and consumer detriment prevented.

    As you can see from this list, where would we be without these champions of consumer interests?


    There. See!

  3. Totally agree Nick!

  4. I’m looking forward to the TSC report and the answer to the question: Looking at the devastation in the financial services industry right now, why didn’t you listen to our advice and postpone RDR?

  5. Your problem Nick is the same as mine, we have been in this industry a very long time. A lot of the current problems stemmed from when the banks realized they had a ‘cash-cow’ with all their customers and off they went with no thought to treating them fairly. Staff were set ever increasing targets to produce sales! Whilst I totally agree with what you have said, there is the major flaw which dictates that this will never work. It is that you idea is common sense and common sense NEVER costs enough money!

  6. What fanciful tosh. I’d love to believe that little would change, and perhaps for conscientious IFAs it wouldn’t, but there would be plenty more corner cutting and people out to make a fast buck at consumers expense. I don’t like our regulator, but regulation is essential.

  7. @ Chris F

    Nicely presented and comprehensive list Chris. No doubt the FSA can find a way to use it in a positive way though.

  8. I agree totally with everything that Nick has said.

    However even in this day and age not all advisers have the same high standards of ethical behaviour

    I am sure that many of us come accross cases that have been missold or badly advised by this adviser or that one and the FSA takes no notice whatsoever if we were to bring clear cases of bad advice to their attention

    There are as a result far too many advisers out there who do not operate to the high standards that Nick alludes too

    every week we see that another IFA has been struck off

    It is because of this small but still significant number that have caused the FSA to believe that
    “the consumer no longer trusted the financial services sector” because my clients trust my advice advice completely

    I hope that the new FCA does what the FSA should have done years ago and gets rid of the small number who are a cancer on our industry

  9. There is a world of difference in “ most IFAs understand that consumers do trust them “ to how many consumers actually trust IFA’s ! Sure there is a vast cost involved in maintaining the existence of these governing bodies, and their roles do need scrutinising, as there must be ways that they could effect cost savings as it happens everywhere else so they should not be any different. However Nick’s idealistic outlook of things is not workable in the real world. Coupled with his belief that self regulation could be a good thing ? Dream on Nick and stop blowing your own trumpet.

  10. I have to agree. The Regulatory system in this country has completely decimated our financial services industry, but has created a load of jobs at Canary Wharf!!! ( that the industry has to pay for!) They wonder why the fees on mortgages, pensions, products and advice etc have increased – it really isn’t rocket science, if you increase the cost of doing business by heavy handed and expensive regulations then ultimately the public will pay for it. I cannot believe that the regulator in this country and the powers that be cannot seem to get this, we are on a slippery slope here and more regulations are not the answer. How many more times are we, the working people, to pay for cock ups by the regulator who keeps getting it wrong.

  11. Nathan @10.03am

    You are missing the point, Nick is not suggesting NO regulation he is pointing out the overwelming benefits of SELF regulation (and peer review) much like the overwelming majority of other professions/trades – far far from fanciful tosh.

  12. Far from fanciful tosh,

    The issue that Nick illustrates here is purely that the cost of the regulation monster (and all the ultimately pointless ancillary offshoots like the compliance industry which exists purely because of the complex nature of rules) is SUBSTANTIALLY greater than the detriment regulation purports to protect.

    Self regulation (not NO regulation) can and does work – you only need to look at most other trades and professions.

  13. I totally agree with Nick. Professionals would act in the same way should the regulator not exist and what a saving we would all make! It would certianly help pay off the deficit. The FSA and other bodies are a complete waste of public money.

  14. Ah Nick! Pipe dreams or what?

    You are entirely correct, but as I have more gray hairs than you and can just about recall FIMBRA/PIA meetings in the City way back, nothing really seems to have changed and my feelings now are the same as they were then.

    The powers that be have never listened to we practitioners and never will. Our various trade bodies have never had enough “clout” over the years and so many IFA’s used to be a mixture of lemmings and ostriches.

    I remember that I and a few like-minded IFA’s mailed some 3,500 FIMBRA members to ask for support to enable us to have the resources to take our opinions and ideas en masse to the regulator. We received just 11 replies!

    Being an IFA is a wonderful and rewarding profession and I still love every minute of it. Mind you, my monthly therapy sessions do help!

  15. I good article Nick and agree 100%.

    I was reviewing our investment process and proceedure yesterday it was agreed that most of our processes already meet or exceed the standards needed under RDR. Which defacto means most of this is a huge waste of time and money for us. A little like when TCF was introduced. As a small business I would not have existed for the last 10 years without systems and processes that delivered a good service & treated my clients with respect. All TCF did was make me write it down, create a file and tick a box.

    Our regulators really do need some sort of peer review as they are clearly losing their way I feel in the labyrinth of rules and counter rules.

    Dont misundertand I believe the regulatory process was necessary to weed out some practices we all witnessed however treating every business the same is plain foolish.

    Meanwhile the UK public is left unamused, confused (especially about RDR) and receiving less not more from the financial services sector

  16. Surely Nick isn’t saying that the TCF initiative was a box-ticking, blindingly obvious piece of fluff by the regulators?

  17. You see Nick – I told you there were many elements we can agree upon. This is one. Overall I agree that the FSA has done a poor job – highlighted by today’s publication of the TSC report into RBS. I agree that the Regulator has been horrendously expensive and on any cost benefit analysis is found wanting. I also agree that a healthy dose of self-regulation is desirable. But I do think that we also require an overarching regulator (a referee if you will – rather than just linesmen). That this entity should be accountable and cost effective as well as efficient I think is a given. Rather looks like the old system of FIMBRA et all plus BoE, pre Crash Gordon.

  18. Derek Gair @ 10:15. You are missing the point as well. Self regulation in the finance industry will not work. Even with the current organisations in place, there are still far too many rogues operating. Nathan @ 10:03 was correct. He might not like the regulators but they are needed.

  19. Richard

    So there are too many rogue Architects are there ? (just an example)

    Of course you are right in part but there will always be a rogue element regardless of regulation or whether fee or commission, exam junkie or not.

    All I am saying (and in this case so is Nick Bamford) is that it cannot be right when the cost of regulation outways the detriment.

    It a bit like flying to Scotland to sign up a a £20 term assurance its not viable.

    Regulation and the protection of the consumer (which is after all what it is all about) does not require the sledgehammer that is the FSA and soon to be FCA approach.

    Anyway listen regardless of what you or I think – it aint gonna happen – too many vested interests.

  20. Nic, you are right, correct, on the money, on the ball, up there with the champions, the only thing wrong with your article is that you did not stand up and state the obvious to them meeting you attended. I suspect this was more from concern about how the regulator might want to “mark your card” than any genuine fear of criticism, but there you are, we all stand in fear of a regulator which has no accountability and no genuine interest in a thriving IFA sector.

    The banks won’t suffer, they have enough money to survive, it is the small, compact, efficient and ethical IFA who will be most disadvantaged by RDR and the regulator, second only to the consumer.

  21. Sadly it doesn’t matter what Mr Bamford or other very experienced and sensible people think. The FSA simply don’t care as the Treasury Select Committee and others have discovered, they only do what they want, invariably after their own failures.

    Self regulation sounds like a great idea which would work for many responsible firms but like cockroaches those who wish to abuse any system will always find a weak point or hole in it to hide and abuse it.

    I still favour product regulation for most everyday products but that would mean the regulator would have to take some responsibility and we all know they don’t want any responsibility at all as they could then become liable for their own mistakes, which would be horrific !!

    It will be very interesting to see if this Government addresses the massive compensation bill in the NHS, currently some £16 billion (and rising), budgeted to be paid over the next ten years, yet those working in the NHS pay virtually nothing towards it as far as I know and 90% of the claims are due to clinical negligence. It is of course a political hot potato for Mr Cameron but it rather imply that peoples money is more important that their life !!

  22. The grim thing is that all the regulation in the world won’t get rid of the rogues. Indeed, a ‘tick box’ mentality as imposed by the FSA on whether a piece of advice is suitable can actually make it easier to be compliant even if the advice is crap. The banks are past masters at being compliant whilst flogging crap products to anyone who can walk (or not). The government created the monster that is the FSA and, having let it off its leash, it is difficult to see how it will ever be brought under control – a simple name change isn’t going to help !

  23. Nic is somewhat wide of the mark because we have proven that the fanciful £500m p.a. consumer detriment figure was a fag packet job using out of date product sales data and out of date detriment analysis that, had an adviser tried it with a pension recommendation, would have resulted in enforcement.

    The actual consumer detriment regarding ‘mis-selling’ is around £200m p.a. if we use the last available figures and asusme that the miscreants still work within the industry.

    The consumer detriment created by the FSA and its nirvana theories re the RDR will dwarf the £500m.

    A self-regulation system can work and such a system would need to have full accountability to both Parliament and the industry.

    In a couple of years when the FSCS has chewed up more advisers with its appetite for yet more levies and the RDR fallout has been seen to deimate even todays modest savings and protection figures there will need to be a reassessment. Let’s hope that this idea gains ground.

  24. Nick,

    Self regulation of IFAs could work…actually it wouldn’t.

    First off there is the fact that what you actually must mean is that the IFA sector should not be regulated as to suggest that the whole industry (with corporates answerable to shareholders) could self-regulate is ludicrous. And that fact alone means that it will never happen.

    Second is the reality of what would actually happen.

    Trust and estate planning – at the high end of the currently unregulated will writing industry operates in much the way you have said you would, with good people operating good client-centric businesses.

    The product sold is a legal contract/document, so although there are ‘product providers’ the product is creatable by anyone with knowledge through education (unlike the products IFAs need to implement their advice, which have additional costs).

    So although it is not totally comparable, it is possible to get it totally wrong and it is under very real threat of regulation because of the HUGE consumer detriment that has been witnessed over recent years.

    Because the thing is, for every one person like you there are a dozen that aren’t.

    Because people are, in the main, exploitative of other people (that’s capitalism), whether directly or indirectly, and sometimes they need to be controlled.

    Regulation is a pain, especially when it is scrutinised and lobbied so heavily that it is almost impossible to do effectively, but it is necessary.

    Could you and your peers do a better job of it through self-regulation? Possibly. Could we all be better without it imposed on us? No.

  25. Derek Gair | 19 Oct 2012 11:21 am

    Architects a bad example. Training for that profession is years. Things are designed to international spec and there will be others having to implement the plans that will very quickly tell you if it will all come crashing down.

    If every IFA practice obtained ISO 22222 specification and was a chartered/certified (or eligible to be) firm then self-regulation could work.

    But to compare the current IFA sector to the architectural one is an insult to the people who design our buildings.

  26. Banford has smelt the coffee!

    But I will give credit where it’s due. Just a bit behind the savvy chaps

  27. Anon @1.57pm – why are you anon by the way ?

    I am not comparing IFAs with Architects (for the record my son in law is one and runs a city practice of 5 others) merely illustrating that self regulation can and does work in many other walks of life whether trade or profession.

    Of course there is a need to ensure that it is accountable and transparent but statutory regulation most definately DOES NOT work and as previsouly stated is not viable.

  28. Nick

    You are entirely incorrect in your assumptions that nothing would change of course there are always going to be individuals that were going to make a quick buck at loose regulations. You only have to look at the mistakes of the past to see that there has been wholesale miss selling of products when we’ve had lacks regulation. Endowment mis-selling for example when I came into the industry there were no fact finds and no comparisons between repayment and endowment. Subsequently we had millions of customers who was sold endowment policies just because the salesman got paid a large commission not because it was right for the consumer.

    Little has changed over the last 20 years you only have to look at the amount of pension transfer business that is done to the benefit of the consultant with little benefit to the consumer. In fact I’ve seen some terrible pension transfer cases which have ended up in compensation being paid to the consumer wants the complaint has gone through the FOS. So what you’re proposing is utter lunacy as our industry has proven so many times before that it cannot be trusted to self regulate.

    There are an awful lot of well run IFA practices up and down the country too often disagree with the regulator but and this is an important but the regulator is there to protect us all from the unscrupulous individuals that do operate in our industry. What we should all be doing is looking for ways to prevent the scoundrels and wrongdoers in our industry from operating the too longer period without being caught. After all is not as if the warning signs aren’t actually there when they are eventually caught.

  29. Regulation so far has seriously damaged consumer confidence, stopped too many people providing for their futures and stopped them insuring themselves.

    The government got rid of one arrogant sod “be very afraid” CEO (I’d love to know if he really did jump…), changed the name over the door and appointed a “we’ll shoot first and ask questions later” arrogant sod. And this is a change for the better?

  30. Nick is correct to point out that the cost of regulation far exceeds even the FSA’s dubious calculation of consumer detriment.

    The FSA budget of £500bn is just the start of it. How much do all the compliance consultants, compliance officers and compliance departments cost? The total price of regulation must be in excess of £1bn a year.

    I would suggest that the public is getting very little in return for their money.

    There must be a better way.

  31. RegulatorSaurusRex 19th October 2012 at 11:19 pm

    I am extinct, will anybody listen?

  32. Unfortunately whilst there is 99% of the adviser community who are upstanding people who always do their best for the client, there is and remains the 1% who don’t. As long as they exist then a regulator will be required in the same way that until all crime is eradicated, there will need to be the police.

  33. I think we need a form of regulation that people respect and that has the backing of the industry it regulates with regulation that supports that industry in the same ilk as Solicitors, who don’t seem to mind being accountable to the Law Society at all.

    Unfortunately IFAs have seen double standard regulation for many years – where they’ve seen their numbers and livelihoods decimated whilst the banksters have been allowed to run the show.
    Will RDR stop protection the biggest mis-selling debacles of all like PPI or Interest Swaps?….erm no..

    One cases in point that comes to mind was the unbelievable FSA edict over banks deliberately providing better direct deals to the public and cutting out an intermediary – their answer was not to outlaw this practice but that IFAs didn’t need to make their clients aware of direct deals. Where is the benefit to the consumer in that??!!!

  34. To Soren Lorensen ~ “FSA budget of £500bn”?? Last time I checked, it was £578.4m.

    That aside, scrapping regulation would open the floodgates for a return of outfits like Barlow Clowes and that just isn’t something that anyone could countenance as progress.

    No, what’s really required is a regulator (sorry to say it yet again) that’s FORCED TO:-

    1. comply with the Statutory Code of Practice for Regulators,

    2. be properly accountable when it fails to do so,

    3. move away from regulatory policy based on the lowest common denominator and

    4. be subject to proper independent oversight of how it sets and allocates its yearly operating budget.

    Answers to the following questions may shed light on the basis of these proposals:-

    1. Why is the FSA’s operating budget this year a staggering £578.4 (with Adair Turner still asking for more)?

    2. Why, unless the FSA has been doing an absolutely dire job, do the FSCS levies just keep going up and up and up?

    3. Just what is the FCA’s game plan to do better than the FSA before it?

    4. Why are our PI Insurance premiums and excesses so high?

    5. Why is consumer confidence in long term saving at such a low ebb?

    6. Why didn’t the FSA regulate the banks properly and/or prevent the epidemic of PPI mis-selling?

    7. Why did the FSA shuck off onto the MoJ responsibility for regulating the CMC’s, described by Martin Wheatley as a cancer on the industry”?

    8. Why, after nigh on 25 years of regulation, is the industry in such a sorry state, with more people than ever bailing out or planning to at the end of this year?

    9. Why is the FSA still free to spend tens of millions of pounds of OPM without being accountable to anyone as to how it chooses to spend that money? (Its annual NAO audit is nothing but a hollow sham.)

    10. How has the FSA been able to get away with having launched its RDR on the basis of a false prospectus and a criminally understated initial cost estimate that’s now more than tripled?

    11. How can the FSA continue to get away with patently phoney “consultations” on proposed new initiatives, without being required by statute to publish any of the feedback submitted so it can be properly debated in open forum? And for an overwhelming tide to objections to a particulr proposal to be subject to the determination of an independent tribunal?

    12. Why hasn’t Parliement stepped in over the failures of LifeMark (not KeyData) and ArchCru, both of them providers not intermediaries, the costs of which have dumped totally unjustly and arbitrarily on the IFA sector, just because a few IFA recommended their products?

    13. Why has the FSA been allowed for so long to continue denying the IFA sector ~ uniquely ~ the protection of a legal longstop, as accorded to all other professions, whilst on the other hand Hector Sants was allowed to claim that the FSA has no prejudicial agenda against small IFA’s?

    Why isn’t the FSA being forced to answer these questions? Why is so totally unaccountable to those forced to fund its very existence?

  35. The regulator costs more to the client than the value of protection. They are poor value for money. The FSA micro-manage whilst missing all of the big scandals.
    A regulator should regulate the products for quality, safety and labelling, just as happens in the manufacturing industy.
    If a pension has 100% allocation, flexibility and a platform of funds; who cares how it is sold or what the commission is. Market forces would identify the best products and the best source for advice and provision.

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