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Now listen a little more FSA

The FSA’s latest RDR consultation paper contained welcome new thinking in its relaxation of the definition of alternative assessments and acknowledgement  that adviser-charging is wholly unsuitable for protection.

But the regulator’s new proposals for group pensions, specifically extending its ban on provider factoring to GPPs, risk damaging an important part of the regular savings market.

The regulator has shown it is willing to listen to the industry in its new definition of alternative assessments for reaching the required QCF Level 4 standards by 2012. Its previous ill thought-out plans for oral assessments were always going to be unworkable and it is wrong to suggest written examinations are the only way to evaluate professional standards.

Allowing such assessment methods to be used on an ongoing basis, rather than just as a transitional arrangement until 2012, is also a sensible move and will hopefully encourage more awarding bodies to offer work-based assessments.

Alternative assessments will be allowed by the FSA as long as they meet the requirements of the qualifications regulator. The FSA points out that OfQual is the same framework used for National Vocational Qualifications and apprenticeships where practical assessments and coursework are often taken into account within the award. All content must also meet the Financial Services Skills Council exam standards.

This will hopefully open the door to assessments that take account of the needs of advisers unhappy about taking examinations.

With the 2012 deadline fast-approaching, awarding bodies, in conjunction with the qualifications regulator, need to be quick to set out any alternative assessments they plan to offer.

Sesame has expressed concern about the lack of detail surrounding these assessments but it seems right for the FSA to leave it as open as possible for the awarding bodies to put together their own assessments.

One major concern will be the role of the FSSC in rubberstamping any assessments. The current turmoil at the skills council should not be allowed to get in the way  of this assessment route.

Rather than totally rejecting Aifa’s call for regulatory dividends instead of arbitrary cliff edges, the FSA should show more willingness to engage with this sensible premise. Heavy on the regulator’s mind must be the damage caused by a large number of IFAs leaving the industry.

Moving on to protection, the FSA’s decision not to extend  adviser-charging to this sector is also a correct one. The consultation paper shows the regulator has taken on board the howls of criticism that greeted the regulator’s previous paper which suggested a possible read-across.

The FSA appears now to acknowledge that meddling in this area risks damaging a section of the market which is functioning well.

Unfortunately the regulator appears less perceptive of potential market damage in other areas.

From 2012, commission on group pensions will be outlawed and replaced by consultancy charging agreed between the employer and adviser.

The FSA admits it does not have conclusive proof of the risks of provider bias and sales bias caused by commission in the group market being realised. However, with only a few providers still offering initial commissions and evidence suggesting that the payment of initial commissions is heavily influencing market share, it was always likely that the FSA’s views on adviser-charging would be replicated for group pensions.  

The big concern is the FSA has also decided to read-across its unpopular ban on provider factoring to the group market. This has the potential to severely limit the levels of advice available to individuals in group schemes.

As per the individual market, the FSA argues that allowing factoring could lead to provider bias being retained in the system. It also believes that a standardised factoring arrangement would fall foul of competition law.

Surely there is a fair argument that allowing standardised factoring could be a means of promoting, rather than hindering, competition?  The FSA should be prepared to have this fight with the Office of Fair Trading and/or the Competition Commission. It would also be helpful if the FSA provided more evidence to support its belief that standardised factoring would be unlawful.

The FSA’s other stock argument against factoring is that the regular savings market is pretty small anyway so why bother worrying about it. Firstly, this displays an ignorance of the desperate need to foster a greater saving culture in this country. The Government and its financial regulator should be encouraging more people to look after themselves and their family through improving savings rates. The RDR has the potential to do this but only if implemented properly.  

Secondly, this point has less relevance to the group market where millions of individuals are saving regularly in group schemes.

The FSA appears pretty blasé about the potential damage to existing provision in its suggestion that any reduction in take-up will be countered by the introduction of personal accounts and auto-enrolment into qualifying group schemes.

It acknowledges that a ban on factoring may lead to less people getting advice with initial charges being set at high levels which will be unpalatable to employees. But it believes the Government’s pension reforms will sort all this out- a big, and perhaps dangerous, assumption to make.

The FSA suggests the ban on factoring will lead to IFA firms leaving the GPP market. According to the FSA, this does not matter as the business will be swept up by Employee Benefits Consultants already operating on a fee-basis. Again a worrying lack of acknowledgement of the value of the advice many IFA firms have been offering over the years.

In its latest CP the FSA has shown it is willing to listen to some of the constructive criticisms put by the industry.  Let’s hope that it remains in listening mode.

In its quest to bring greater transparency to group pensions the FSA risks damaging, rather than encouraging, an important part of the savings market. 

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Usual output from the regulator? 23rd December 2009 at 2:49 pm

    Just ponder on a few keywords from the above article:

    Lack of detail; Meddling; Less perceptive of potential market damage; Severely limit the levels of advice; FSA appears pretty blasé; Dangerous, assumption to make; The FSA risks damaging, rather than encouraging.

    Yep, seems par for the course….good old job description interference for the sake of it! The only positives are where they have now decided to leave well alone…..priceless.

  2. ‘It also believes that a standardised factoring arrangement would fall foul of competition law’
    you say. The Treasury is proceeding with Personal Accounts. This scheme will have had all of its set up costs paid by the tax-payer and no doubt the tax-payer will subsidise the running costs as well. In what sense is the government’s introduction of the Personal Accounts scheme into the market place in keeping with compertition law?
    THE motivation for the removal of adviser payments from GPP’s is to remove all competion for the delivery of Personal Accounts. The role of IFA’s in providing pensions advice and admin for small businesses has not been measured by the FSA

  3. The EU bureaucrats dictate that we rycle more, in the UK we are good at doing what we are told, however we have been recycling regulation for two decades and although I can confirm that the regulator is listening the playing field is far from being level because of the mindset of all the recycled regulators.

  4. Should we all be open and honest about our qualifications/experience and give the consumer the option of making an informed decision?
    I’d love to see an “old bleater” explain to a client:
    “The FSA proposed a qualification that I chose not to get because (1) it would be too much hard work, (2) I don’t know the subject material and would have had to study instead of service my clients, (3) my 30 years experience should mean I don’t have to sit any exams (despite constant changes in the Financial Services industry, taxation, products, legislation, etc, etc, etc…), (4) the exams are not relevant and I can’t understand why the regulator expects anyone to have them, (5) I invested 12 hours study to get my FPC3 so I know everything there is to know, (6) if I had passed the exams, they’d only want me to pass more in the future. Alternatively, Mr Client, you could see an adviser elsewhere who decided to pass the exams and is far more qualified than me”.

    If I were a client of this “old bleater”, I’d soon be an ex-client.

    Get a grip, there’s no choice, pass the exams…..

  5. What more can anyone expect from the greatest bureaucratic failure in history – the FSA. It’s run by ex-bankers, for bankers – not the public. Nothing is ever thought out properly at the FSA so what do we expect? Let’s just hope that a new government does what it has promised and closes the joke the FSA is.

  6. Whilst I naturally welcome ‘discussion’ papers on the RDR in principle, the fact that the FSA can have got so much so wrong initially is very worrying.

    As I see it the FSA came out with a large number of ideas, lets not call them proposals quite yet, on how to change the industry. These ‘ideas’ demonstrated a distinct lack of awareness of the relationship between client and adviser and a lack of understanding of business models within the SME Adviser and Broker community.

    The FSA understands the ‘large firm’ business model of shifting standard ‘products’ cheaply to as many customers as possible, with minimal advice and little regard for the customers needs or circumstances. This is probably because the majority of their personnel come from ‘large firm’ or ‘large bureaucracy’ backgrounds and has a bearing on their poor understanding of SME’s

    With personnel coming from such backgrounds it is no wonder that the FSA appears unable, or perhaps unwilling for some reason, to understand Advisers and Brokers who are generally much closer to their clients than the ‘advisers’ from ‘large firm’s’ can ever be.

    Small firms thus start off with a handicap as far as their relations with the FSA are concerned. The regulator cannot understand that it is precisely because we wish to give a much more personal service to our clients that we have chosen to be independent and run our own businesses and we don’t relish being told what to do by people who have never run an SME. The FSA see us, having chosen to be independent, as something separate and therefore suspect. Exemplified by the attitude of ‘guilty until proven innocent’ for SME’s that permeates the Canary Wharfe offices and appears an established part of the regulators culture.

    In the bureaucratic mind anything that is ‘independent’ or that does not ‘conform’ to it’s way of thinking is somehow automatically inferior resulting in the regulators view that it must bludgeon the independent into ‘conforming’ with rules it lays down. Whether these rules are useful, sensible or cost effective is never the point because the FSA believes it is always right, even when proven to be wrong. They claim that these rules are there for the benefit of the consumer, but are not required to prove that this is so. In many instances the effect is that the rules become more important than the client and the FSA is now in a position where it effectively tells the public not only what the public wants or needs but also what it is going to get, whether it wants it or not.

    So having been proven totally incompetent in it’s understanding of financial systems and markets, an area in which we are entitled to expect it to have ‘in depth professional expertise’, the regulator now thinks that it can redeem itself at the other end of the market spectrum by pushing in an area where it patently has very little knowledge and even less professional experience.

  7. Good comments from Andy. One further thought – in what way does an IFA who likes to provide the personal touch add value to the client? Is it because the closer he can be to a gullible client, the more likely he can be to persuade the client to buy a certain product that he can dress up as suitable (and ideally one that maximises fees of course)? Go on – admit it!

  8. Rather than viewing the removal of commission from group contracts as a negative thing why not focus on the positives.

    These arrangements are a benefit of employment provided by the employer. It makes sense therefore that the overall relationship should be with the employer then and therefore we should be focusing on building that first and foremost. This will obviously mean justifying a fee to the employer for the advice given to them but this shouldn’t be a problem. It may be a problem to those advisers who tell employers that the advice is free because the insurance company will pay me a commission out of the members account but I’m sure we don’t have a rpoblem with that. If we can’t justify the work we do and what we get paid for it then that is our problem.

    Secondly, how many times have employers made redundacies or been acquired, leaving firms with large clawbacks on group schemes. This is particularly unfair where lots of work and member meetings etc have been carried out. If we get paid by the employer this will be a thing of the past (and forget going after the employee for the clawback repayment).

    The new proposals shoudl have employers seriously considering their relationship with their employee benefit consultant and the advice and service they provide. It shoudl actually present opportunities for smaller firms to get into the market currently inhabited by larger EBCs who cannot provide the personal service much vaunted by smaller firms.

    Perhaps I’m more half-full than half-empty!

  9. Full of something anyway.

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