The growth of unregulated business (for example, term insurance) has always puzzled me as selling someone level term without a conversion option is like giving them a lifeboat with a hole in it.
Or worse still, setting up a term plan out of trust (unless for loan cover) can lead to more problems than it solves.
I had always assumed that the FSA had plans to bring all such plans into the regulated area but I had missed the fact that the FSA had its own agenda to offer some unregulated advice of its own. Could this all be part of some grand Machiavellian plan?
First, we make giving adv-ice as complex as possible, then we change the rules with the benefit of hindsight, then for the piece de résistance we offer advice in direct competition but without the complexity of our own rules.
When the pension review was in its infancy, we had a long debate over what was “information” what was “advice”. It will come as no surprise that the regulator viewed that information which led to purchase was advice by implication.
Let us suppose that I set up a website with some comparative tables, which focus almost exclusively on charges, which implies that the elements excluded have no relevance (that is, investment past performance). I then offer up some decision trees and offer them a CD to consider matters more leisurely offline.
If we did this, we would need to be regulated but if you are a regulator you can offer this service and give no advice, have no liability and no need to have a complaints policy because the user(s) can never complain.
For those unlucky IFAs who did not get through to the FSA order line for the CD-Rom, can I assure them that it is to giving advice what Victoria Beckham is to Kylie in terms of success in the pop charts.
The CD is almost entirely text based and fails to cope effectively with multiple objectives. This just emphasises that the regulator is still very heavily oriented towards single product sales. If this was not enough, the CD uses a font size which will keep opticians busy for some time.
Let us consider why this CD may have been issued.
Was it intended to be part of a drive to provide advice without regulation (unregulated advice)? If one of its core objectives is to ensure that individuals can source advice with the support of a regulatory structure then, no.
Will it replace the professional adviser? Given that it is so heavily text-based and inflexible, no.
Can it make any real impact in the quest for financial literacy? As with the comparative tables, this information source is only available to those with access to technology, again the answer must be no
The presumption that a single style of approach to delivering financial advice can work forgets the varied needs of the general public.
We can only hope that the Sandler review will recognise the need to offer a range of advice options to cope with the varied levels of financial literacy and the ability to pay for advice.
This may mean that the delivery of independent advice has to take a variety of forms and levels.
But all this must come with regulatory protection, otherwise previous arguments of what is information and what is advice will be overturned.
So, is the FSA likely to meet its consumer education objectives with its current approach? I can put it no better than in the words of a senior regulator: “Sometimes the consumer education part of the regulator promises what the rest us know we will never deliver.”
Robert Reid is principal of Syndaxi Financial Planning