I was disappointed at the suggestion by the Tax Incentivised Savings Association recently that there should be a diluted compliance regime for online advice. Regardless of the delivery mechanism I believe it is essential that standards be consistent.
Where I do agree with David Hazleton’s comments is that there is an urgent need for greater clarity in advance from the Financial Ombudsman Service, particularly as to how they will treat online cases, but this should extend to situations in the human world too.
From a practical perspective, it is folly to suggest that online processes need a simpler approach. On the contrary, the lack of human intervention and the ability to capture a complete audit trail which might be reproduced at any stage in the future, should deliver greater certainty over exactly what interaction took place between customer and adviser.
When consumers are interacting with digital services, whether they are web-based, mobile apps or any other variation, complete records should be captured. But where the problem really arises is what the consumer understands. This is as much an issue in the physical world as the digital, as shown by the FSA’s recent consultation and guidance on assessing suitability.
I am encouraged to see the recent statement by FSA head of conduct risk Nausicaa Delfas that, in addition to aggressively enforcing their new guidance, the regulator does want to engage with the industry to identify the best way to address these issues.
Many clients will respect the integrity of advisers with the courage to tell them frankly when they cannot work miracles
The FOS could learn a great deal about such an approach. Given its constitution, it can hide behind its long standing approach of it being the FOS’s role to step in and give judgement when situations occur. But would it not be better engaging with those at the coalface trying to guide consumers to provide greater clarity on what they expect? This could, in time, lead to a better understanding across the industry and potentially a reduction in FOS complaints.
In the 21st century, the FOS should stop behaving like Sir Humphrey from 1980s’ sitcom Yes, Minister, with 1,001 reasons why things cannot be done and instead should start working with the industry to find solutions to help people.
Put candidly, if it is not, or does not want to be, part of the solution, it is part of the problem and, in practice, the FOS is one of the biggest problems constricting the ability of consumers to get better financial advice in the UK today.
The Treasury recognises the desperate need to help more people provide for their future needs to reduce state dependency. By acting as a major barrier to progress, the FOS is condemning millions of people to being less informed and restricting their ability to plan for their future.
If the FOS were a modern, well run organisation it would recognise the need to engage with all its stakeholders rather than sitting idly in its ivory tower oblivious to the real world.
In the meantime, we should be grateful for the new openness from the FSA. This is a stark contrast to the approach on this subject earlier this year, where the original consultation appeared with a window for response so short I believe it is without precedent. One might think the FSA realised this was something they should have addressed sooner.
Now, having laid down a marker, it feels able to enter a wider dialogue with the community. Whatever the reason, the new willingness to engage is very welcome.
I think it was valuable to see the FSA state clearly that it expects advisers to address not just the client’s risk profile but also to consider the capacity to incur and ability to tolerate risk.
How often have we seen consumers opt for solutions that are excessively aggressive or optimistic because more realistic expectations will not deliver the returns they desire from the financial resources available?
This actually goes to the core of regulatory issues and certainly vast numbers of FOS cases. As an industry, we need to be more willing to say no.
Advisers give advice, they do not provide financial alchemy, although perhaps too often they do not say this clearly enough. If customers have failed to make adequate provision for their future it is not the adviser’s fault.
Ironically, online tools are frequently far better able to demonstrate this than a human, especially one trying to make a sale who might find it difficult to present cold stark facts.
In such cases, the lack of interaction can play a powerful role – however many times the client may plug in their details, the answers will still be the same.
I welcome the FSA’s new approach to suitability and hope that as part of this work it will consider how both human and automated advice systems should address situations where what is actually called for is the candour to convey to the client that goals are unrealistic.
There does appear evidence that some advisers have, perhaps in an effort to keep the customer happy, offered solutions that may have failed to meet some of the new tests.
In achieving a higher standard, we must be prepared to say no.
There is a new economic reality in Britain today – consumers are much more aware of the starker economic outlook and that they cannot rely on governments for financial support.
Against this background, should we recognise the longterm value of giving answers people don’t want to hear, not least as it can encourage them to trust us more in the future?
If a customer does not want to hear that they are being unrealistic, trying to keep them happy can be a recipe for future complaints.
Conversely, many clients will respect the integrity of advisers with the courage to tell them frankly when they cannot work miracles. I hope such issues will also be seen as a key part of future work on stability.
Ian McKenna is director of the Finance & Technology Research Centre