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Outside edge

So “misselling” is in need of redefinition is it? Well that is Ron Sandler&#39s view but is he right? It is my contention that the current highly pervasive compensation culture is in need of far more than the simple redefinition of a word that has never had a definition in the first place.

“Misselling” is not a legal concept. It is an invention of previous incarnations of regulators encouraged by passing legions of ambitious junior ministers. In 1,000 years of English or Scottish civil law no such course of action exists. Your advice may be fraudulent, negligent or incompetent. You may be guilty of misrepresentation or misadministration but not misselling.

For 10 years, I found myself in the unique position of being central to nearly all the discussions surrounding this issue. In that time I saw the industry&#39s confidence disintegrate both internally and externally.

Principally, the industry has not had the moral strength to stand its position, not for its own self-interest, but on behalf of its policyholders and shareholders. As soon as we permitted regulators to circumvent the civil law, we injected a virus into the body of every provider, which could destroy the capital strength of each one. What price prudential regulation when a firm has no idea of its future liabilities?

While a provider&#39s commercial dealings are still firmly embedded in legal tenets, its relationship with its clients is now in the hands of regulators and ombudsmen who are not behoven to civil or case law and can change their judgements on a case-by-case basis as fashion, political and media pressure forces their hands.

The stalking horse for much of this was the pension review. I tried to stop regulators and politicians abandoning civil law procedures and found myself cast in the role of John the Baptist, with similar personal results. Our arguments surrounding the judicial review were valid at the time and have proven to be both correct and visionary.

The reaction of this industry&#39s establishment was to avoid principle and take the line of least resistance – after all, there were shareholder and policyholder funds available to bail firms out. It may have suited short-term commercial expediency but, with those funds now depleted, where do you find the next payout?

There is only one thing to do with misselling – scrap it and, with it, all excursions away from the civil law. This would not be an easy route to tread. Civil law itself is weakening a number of prime defences but it would introduce a modicum of certainty something the PI market desperately needs. Redefinition would only extend the uncertainty creating an arbitrage between those who benefited from previous reviews and new claimants.

I am not advocating removing the ombudsman but strictly limiting the procedures, actions and judgements to those that a civil court would accept and removing from him any influence that the regulator might bring to bear.

We must re-establish the concept of consumer responsibility. It cannot be right for a client to receive 15 individual warnings on the volatility of investments and still be able to claim that they were not adequately warned. It cannot be right for advisers to be exposed to claims to the grave and beyond. In particular it must be wrong that clients can initiate the most specious of proceedings at no cost to themselves. The ombudsman must be a form of dispute resolution not a no-pay lottery.

All this is going to run against some lobbies who believe that providers have unlimited funds and consumers unlimited rights. Neither can be the case. The industry cannot be held responsible for the failure of Government policy or paradigm shifts in markets and interest rates and yet that happened in the pensions review and could happen over endowments.

We are in a long-term business and need long-term certainties. Clients need policies with embedded value, not lottery tickets.

Garry Heath is chairman of Impartial

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