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Paul Beasley: Campaigning for more regulation must stop

The boss of Richmond House Wealth Management responds to Money Marketing columnist Paul Lewis’s latest article that questioned the effect of pension freedoms

I am in the majority of advisers in that I am still, just, in my 50s. I therefore grew up with the Man from the Pru calling monthly to collect premiums, got married with a mortgage at a young age and therefore had at least a basic understanding of finance in my 20s.

The world has moved on. We called out the Man from the Pru for what were expensive policies. Yet the example of my parents saving resonated with me and stood me in good stead. My buying a house gave me an understanding of mortgages and credit and, with it, the value of life assurance to protect the debt. Where are today’s financial role models and educators?

The die was cast in the early 1990’s following the Maxwell scandal, in which it was discovered £450m of investments were missing from the pensions funds of media tycoon Robert Maxwell’s companies. The scandal triggered the Pensions Act 1995 as well as other legislation.

Increased regulatory and actuarial burdens killed defined benefit schemes. At a stroke, millions of employees saw their gold-plated pensions closed and future generations left to fend for themselves via money purchase arrangements. Therefore, they need advice.

Then we had the RDR. Another principled attempt to improve client outcomes that had totally the opposite effect. Banning commissions removed access to advice from all but the mass-affluent and above. The result? The FCA is now worried about an advice gap. Those consumers who had access to commission-based advice now have to pay up front or from their pension pots. Those wanting advice on regular savings could forget it; advisers are not a charity.

So, the proposed solution to the advice gap created through the RDR is for providers to give even more information, investment pathways (what happened to risk profiling and capacity for loss?), and even drive consumers away from cash. What happens when the 10-year bull market comes to an end? Good timing!

Has the FCA forgotten it was overwhelmingly the banks and direct sales forces that were responsible for poor advice and mis-selling? Clearly it has because it believes providers’ guidance, investment pathways and forced investment creates “good” client outcomes.

More recently we have had Mifid II, the latest unworkable and pointless legislation from the EU, which, no doubt, only this country will take seriously. The regulatory burden has spawned a whole new industry in compliance. Even the smallest firms now have to spend tens of thousands of pounds on compliance consultants and professional indemnity insurance premiums have spiralled.

Yet another FCA initiative is to drive down fees. It even wants providers to offer individualistic and complex drawdown plans for the same price as mass market compulsory auto-enrolment plans.

If we want consumers to be more engaged and educated then we have to promote individual responsibility. Giving consumers easy options of investment pathway one, two or three is not the answer. They need to think about their risk tolerance, their drawdown rate and their desire to assist future generations.

Only when they understand the importance of what they are considering will we get them to make informed decisions. Individual responsibility also extends to their choice of adviser. They even have free guidance through the Money Advice Service. What more can we do?

This is the inevitable consequence of removing caveat emptor. We see it in the NHS with missed appointments costing hundreds of millions every year. When responsibility is removed from the individual they see no value it. The FCA has created a two-tier system by over-regulating: the haves in terms of wealth and financial education and the have-nots, for whom advice is perhaps more important but they have been priced out.

We also have a supply problem because barriers to entry are high and the consolidators continue to hoover up the small guys. Carry on like this and we will have just a handful of St James’ Place types left which, with no criticism of SJP, will not lead to good client outcomes.

It is lazy journalism to continue to criticise and campaign for ever-increased burdens to be placed upon our profession. It is rather like a leftist comedian who only has to say the word Trump or Thatcher to get an audience response. A good financial journalist would recognise the huge strides all sectors of financial services has made over the last 20 years, including the banks over the last 10 years.

Mr Lewis should be campaigning for the FCA to give us a break and to treat us with more respect, encouraging cooperation between regulator and regulated for the benefit of consumers, and start highlighting the fact that consumers who take advice end up saving more and achieve greater financial security in retirement.

So there is your challenge Mr Lewis, start writing some positive articles. Join us in campaigning for a freeze on any new regulations in favour of greater enforcement of current rules for the miscreants. We might then just start to see a renaissance in the advice sector and ensure you still have a profession to write about in five years’ time.

Paul Beasley is chief executive at Richmond House Wealth Management

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Graham Gingell 19th July 2018 at 1:29 pm

    Well said.

  2. More regulation leads to higher costs for consumers and a barrier to affording quality advice. The FCA should consider whether they are treating customers fairly or perpetuating their own existence.In their words higher costs to achieve the same outcome is a self defeating transaction, does anyone in the FCA or journalists like Paul Lewis realise who pays the industry costs at the end of the day?

    I cannot see how this barrage of regulation improves consumer outcomes,whilst at the same time major scandals are going on under their noses and some advice firms are interpreting the rules to suit themselves.

    If they really want to help the mass market who cannot or will not pay for advice, then initiatives will have to come from Government and the Regulator to provide non advised distribution channels for which they are responsible, of course that will not happen when the blame for the advice gap can be apportioned elsewhere.

    • Julian Stevens 19th July 2018 at 2:50 pm

      Which basically boils down to the need for a regulator of the regulator because, clearly, the FCA cannot be trusted to be left to its own unaccountable devices. To avoid yet more costs being heaped onto the industry, the necessary powers should be given to the TSC.

  3. Nicholas Pleasure 19th July 2018 at 2:04 pm

    Quite right!

    Also, am I the only one who really doesn’t understand MiFID II? I think I understand what is needed but none of the providers seem to have the information available.

    Clients won’t read it anyway; most are asking for less rather than more paper.

  4. An excellent appraisal of our industry which reflects the issues I face every day.

    Just to add that I believe that the compliance burden is now impeding client outcomes and, in my opinion, needs a fundamental rethink. For example, it took me 45 minutes to calculate, document and explain a £2.75 dealing cost to one of my wealthier clients; should I charge my hourly rate to do that?

  5. I have been advised that it is now necessary, MiFID II, that I need to put in an annual review document:-
    How much the initial investment
    Current annual contribution
    How much withdrawn this year
    How much withdrawn in total
    Current value
    Amount charged by investment company
    Amount charged by my firm

    I then receive a copy of the statement sent from the insurance company with exactly those points in yet I am obliged to copy them into my annual report.
    Surely this is not common sense!!

  6. I must say reading this article made my neck ache …..the nods of agreement just were relentless…..
    We unfortunately don’t not make policy, we are not consulted on policy (well should I say our views are resigned to the bin at the foot of the table), more importantly, a loosening of the straight jacket regulation (if you will) does nothing to further the careers or fatten the pockets of the bureaucrats and or the press
    We are the plague carrying rats of ole London Town (in their eyes) that must be taken to task with a flame thrower…

  7. “The scandal triggered the Pensions Act 1995 as well as other legislation. Increased regulatory and actuarial burdens killed defined benefit schemes.”

    Not correct. The killing of defined benefit schemes started with the 1973 Social Security Act, which was the first of a succession of Acts which retrospectively made defined benefit pensions more attractive than the deal the members had signed up to.

    The legislation was well-intentioned and necessary as the schemes would have been grossly unfair without them. But increasing the benefits retrospectively made their closure inevitable.

    “Banning commissions removed access to advice from all but the mass-affluent and above. The result? The FCA is now worried about an advice gap.”

    Those below the mass-affluent have never been able to access advice. They did not get advice from the man from the Pru as we understand the term “advice” today. They got selling. Selling for a product that improved their lives, but selling nonetheless.

    Th non-affluent still get selling from Internet adverts, robo-sales outfits and other sources. If I ever turn off my ad-blocker I can’t move for adverts telling me that if I haven’t got life insurance I must read this one weird trick. This is what the man from the Pru is doing today.

    There is no advice gap, there is only people who don’t have any money.

  8. Nicely put Paul Beasley

  9. I agree, we have enough regulation and enough change and we have principles and TCF- what we do need is greater consumer education; more consumer responsibility to understand what they are paying for; competition to drive fees down and advisors who put their own pockets above clients interests have to be identified and stopped. Enforcing current ethical, TCF and senior management responsibilities should be the focus in my view.

  10. Best article I’ve read this year.

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