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Outside edge

If Ron Sandler can deliver a consensus, or something close to it, among industry, consumer groups, Government and regulators on a blueprint for reform, he will be a prince among reviewers.

But one fundamental component has been left out of the equation – the need for a decent understanding of the needs of business.

The recent history of regulation and reviews does not bode well. Take one recent example. When past performance was left out of the league tables, as the Chancellor likes to call them even if the FSA does not, it was suggested that this could also lead to a ban of the use of past performance in advertising.

This sounded like the stuff of rumour but a reading of the taskforce report shows just how close it came to being banned. Most businesses would regard moves to stop them using their track record to convince customers to buy their products, provided they do it truthfully, as an almost inconceivable interference in the free market. But not in the current climate of financial services.

At least in this case, the powers that be look set to opt for a less prescriptive reform but even the recommendations are being seen as an attack.

This problem is the tone of the regulator&#39s work strongly implies that fund management is a guessing game.

Some managers have strained credibility with advertising boasts but ask any investment IFA who the guilty parties are and they can rattle off the names, so did it require some sort of root-and-branch reappraisal? I think not.

An even worse case is the plan to regulate mortgage information but not advisers.

The FSA sent a strong message to the Government a few years back that it could not afford to regulate the adviser side of the mort-gage industry.

The result was proposals from the Treasury that tried to overcome this hurdle with no bearing to the real situation.

The lenders are being asked to turn their relationship with intermediaries upside down, a move that could see a dramatic reduction in numbers.

The FSA is tying itself in all kinds of knots because its proposals ignore the business case.

This final outstanding example, although there are others, is stakeholder, where a highly portable, price-capped pension seems to satisfy all consumer requirements. Over-optimistic politicians believe it will help them with welfare reform. But the real problem is that it is almost unsustainable for all but the biggest players in the pension industry.

It is very risky for companies to offer a pension with very high up-front costs that can then be whisked away by rivals just when it might become profitable. There is a high risk that existing policyholders and shareholders will be penalised. The business case would never have imposed such a Draconian pricing system.

So then we come to Sandler. He is seen as someone to shake up the industry. But if any reforms are to work, the business case must be considered. That means accepting, among other things, that distribution is necessary, not optional.

Ignoring what businesses say because “they would say that, wouldn&#39t they” or giving more credence to one opinion because it plays to prevailing prejudices should not be a route for any serious reformer.

Any suggestions for reform must make practical sense. They must try and reconcile the competing interests and it must also find a way for companies to make a profit as well as serving consumers and improving competition.

If Sandler fails to do so, it could turn the already dire relations between the industry on one side and regulators, Government and consumer groups on the other into an out and out confrontation that helps no-one.

Ultimately this will create a whole raft of further problems for some as yet unborn “son of Sandler” to have to solve in five years time. But to get it right this time, Sandler will have to accept it is not just the industry that has got it wrong.

John Lappin is the editor of Money Marketing

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