Grinding through the 50 pages of CP166, I am reminded of the words of HL Mencken: 'To every difficult and complex problem there is an obvious solution that is simple, neat and utterly wrong.”
No chance of the FSA falling into that trap, then. But after a lifetime of working with actuaries, I am equally well aware of the dangers of composing solutions of Byzantine complexity which, once exposed to the realities of the commercial world, generate absurd and unexpected outcomes.
Let's look at an example. I am one of those people who believes the better than best rules are a good thing. They prevent providers buying IFA distribution capacity and abusing their ownership to drive up the sale of their own products. Nobody has yet given me a cogent reason why a provider would buy an IFA other than to influence the volume of its own products that are sold. I hear the pious “we regard this as an excellent investment in its own right” but that sounds to me like a triumph of hope over experience.
Still, somehow, the FSA has persuaded itself that the existing rules are arbitrary in nature and should be done away with. It then comes up with no fewer than six paragraphs of “safeguards”. Hence a simple mechanism designed to avoid a potentially damaging conflict of interest goes, to be replaced by a complex set of rules designed to limit the damage that would never have been risked had the rule been not been done away with in the first place. Amazing.
Worse, the FSA proposes a Blairite “middle way” of advisers who are multi-tied to as many providers as they want but who are not independent. However, they can legitimately claim in their private conversations with their clients to be “more or less independent” or “independent in all but name'. And they will claim that.
If the FSA persists with its current proposals for multi-tied agents, it will very soon find itself having to solve a whole new set of problems driven by the confusion and the potential that confusion creates for exploitation.
Let's get back to Mencken. Taking my reputation in both hands, here is a simple solution that may well work in practice but will not work in theory.
In a different part of the Treasury, we have had a bunch of fearsomely clever folk working away at their response to Sandler's recommendations. Another 45 pages of consultation document.
Presumably, once the Treasury decides on the final form of the new stakeholder products, we shall have another round of FSA consultation about how they fit into the new advice and sales framework envisaged by CP166. Indeed, I can find no reference at all in CP166 to stakeholder products other than to remind us that stakeholder pensions have already been taken out of the polarisation regime and what an earth shattering development that has proved to be.
My simple solution is this. Advice can only be given by IFAs who have a fiduciary responsibility to the client (we could resurrect uberrima fides – in good faith) and who must select products from the entire market. They must offer their clients the alternative of payment by fees for the advice. Keep the better than best requirement. Retain the indirect benefit rules. Drive up the professional standards and competence of IFAs. Only these people can call themselves “advisers”.
We then have salespeople (persuaders, to use the entirely accurate jargon of Oliver Wyman & Co) who can only sell products from the stakeholder suite but they can sell from the entire market of pro-viders. Only generic advice is given and consumer protection is based on product regulation.
At a stroke, we have established absolute clarity between advice and selling. At a stroke, we have increased the potential for consumer choice by several orders of magnitude. Provided the FSA comes up with an appropriately pragmatic regime for the regulation of the sale of stakeholder products, we will then create real potential for the rapid rebuilding of the savings ratio, with the banks and supermarkets leading the charge. Obvious, simple, neat and utterly wrong?
Tony Kempster is a distribution strategist