OK, so now it looks fairly official. The FSA has totally lost the plot on stakeholder. Tony and his cronies gave every indication before they came in to power that they would enforce price control on financial products, without the slightest regard for the realities of the world. Some four years later we're staring down the barrel at the shotgun wedding between the industry and stakeholder pensions.
Don't get me wrong – I am not saying that it is not possible for stakeholder to be delivered effectively within one per cent pricing. On the contrary, there is ample evidence from the US, where many 401k schemes are operated at far lower margins. However, the key to achieving such low margins is to be able to do everything to drive out cost.
Unless it is possible to do this, stakeholder could represent a financial disaster for the UK economy of cataclysmic proportions. As has been widely identified, if processed using conventional means, it could take life offices as long as 10 years to break even on stakeholder schemes. This has the capacity to turn even the strongest life office into another Equitable.
You only have to look at how quickly liquidity evaporated in the early nineties for those life offices who kept paying excessive returns on with-profits plans rather than pass on the impact of the reduced investment returns.
It should be possible to create an environment where the industry can make maximum use of technology to make low-cost pensions a reality. A responsible regulator would be working with the industry to see how they could aid the widespread use of communications and other mediums to ensure a transition to a frictionless trading environment.
We unfortunately are stuck with the FSA, and what is the best they can contribute? – to bicker over who does what and cause the maximum obstruction to enhancing the consumer experience.
Many advisers were clearly planning to focus their attention on advising the client employer whilst allowing the individual member to make contact with the provider directly to elect upon a suitable course of action. Now the FSA are saying that if they do they will lose their income from their involvement in such members' participation.
The FSA has drafted the decision trees (that as you will note from the small print they are not prepared to take responsibility for – not that they ever take responsibility for anything) and now they are saying that if it is the life office that walks the member through the tree.
The adviser, who may have spent large amounts of time with the employer identifying the appropriate scheme, cannot be paid. Has anyone considered the cost of identifying at an individual level which members were admitted to the scheme via the IFA and which via the call centre? Presumably also, as they are not being paid for dealing with individual members, some members' documentation will be issued via the IFA, while documents for the members who made contact direct will have to go straight to the employer.
Call centres are unlikely to be the only channel affected in this way.
Internet, worksite extranets and digital TV presumably will all be similarly affected.
What is the situation when a life office has created a new media-based sign-up service which is then incorporated into the adviser's web site for delivery to the customer?
Are the FSA really suggesting that in this case the IFA would have to build their own service and then get the life office to communicate with it? It is essential that life offices are able to deliver such services in a way that is entirely consistent with their back-office systems. Anything else will mean that costs spiral out of control.
This is a real body blow, not just to the IFA community but also to the chances of any realistic level of take-up of stakeholder. The more the FSA does to block easy access by members to assistance and guidance, the fewer will take out stakeholder plans. I can't help thinking that this will rather conflict with the objectives of a certain Mr Brown and others!
Trying as ever to find a constructive way to go forward amidst the chaos caused by the regulator's myopia, if commission is going to be taken away if a member contacts a provider, why not set the scheme up on the basis that there is nothing to take away?
An increasing number of organisations are looking to charge fees to employers for their work and then arrange the scheme on a nil commission basis. Presumably not even the FSA would prohibit the use of nil commission if the member has contacted the provider's call centre.
Even before N2, the FSA has clearly shown itself to be a bully boy which is all too ready to pick on the little guy, but cowers in the corner whenever anyone who might be able to give them a fair fight shows they are not prepared to be steamrollered.
A classic example of this has been the ability of a number of high profile new players, known to have their own direct access to Downing Street, who have been allowed to deliver online services that stretch the creditability of what is or is not advice.
I have covered examples in this column in recent months. At the same time as a number of smaller IFAs have contacted me to say they have been told not to launch similar services.
As anyone who has visited the FSA palace in Docklands can testify (rarely have I see such wanton opulence, it looks more like a five-star hotel than a prudential regulator), the FSA are all too quick to spend money and they certainly seem to know how to demand it. Hence their recent insistence that all fees must be paid as lump sums rather than in instalments.
Sadly it doesn't seem to recognise the need for those who really are serving the public to earn a decent living.
New regulators come and go but nothing really changes. Given its shameful failure to act in the case of Equitable Life, it would be reasonable to ask if the regulator is really a fit and proper organisation to fulfil its obligations. No doubt in due course they will trot out their standard line about not being able to be held responsible for anything, courtesy of their statutory exemption.
This reminds me of a Fimbra AGM many years ago when the chairman was asked by a member how he could justify the regulator being so far outside the solvency margins it demanded of members. The arrogance of the response was simply astounding: “We are regulated by the Companies Act, you are subject to the Financial Services Act”, came the gloating reply.
The first phase of the CP80 proposals are being processed with a speed and lack of proper consultation that beggars belief. No one in their right mind can suggest it is really in the consumer's interest to push through these changes at this speed, but who gives a damn about consumers.
After all, they are only the voters, they get their say once every four to five years and it looks like that little inconvenience is being dealt with at the same time as these changes are being forced through, so it will be years before anyone has to worry about them again.
A cynical person might suggest that the FSA's supplication to the Government's political need to do anything they can to make sure that stakeholder is not the total disaster it gives all the indications of being might have a great deal to do with the regulator's desperation to make sure no-one digs too far into their inaction in the case of Equitable.
If, of course, the regulator had a proper duty of care and a legal responsibility of the outcome of their actions, similar to those they quite reasonably say are appropriate for others in the industry, we might find a lot less haste and a lot more care.
The root of this problem is, as I see it, the regulator's statutory protection from liability. Many people are suggesting that this would not stand up to scrutiny in the European court under the recent changes to human rights legislation. To me this sounds like an excellent reason to organise an industry-funded challenge in the European Court as soon as possible. Then consumers might actually get the protection they deserve.