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Phil Billingham: Our hypocritical view of regulation


“Regulation is a bad thing, interfering in our relationships with clients, judging us with the benefit of hindsight. Clients know what they are doing and understand things can go wrong. After all, they signed the paperwork.”

Okay, I’ve paraphrased, but that seems to capture the essence of many an IFA’s view of regulation. But we are completely schizophrenic, even hypocritical, about this subject. 

It is said we all lie, on average, at least five times a day, most often in ticking the box online to say we have read and understood the terms and conditions. 

We choose not to read the terms and conditions because we don’t think they matter, we don’t have the time and we know we can’t change them anyway. More importantly, we trust Amazon, Tesco and to ‘do the right thing’ if it all goes wrong. (Please note, Ryanair is excluded from this line of reasoning.)

And yet how often do you hear the refrain, “but you should have read the terms of business/risk warnings”, when our clients take issue or complain?

Yet in the rest of our lives we expect regulation to protect us. We expect food to be well regulated and safe. We expect drugs to undergo rigorous testing and doctors and to be trained and monitored. To be topical, we expect airline pilots to be sober, awake and well rested.

We also expect someone to take responsibility when there is a problem and for things to be interpreted in our favour. That’s not compensation culture; its relying on the brand to do the right thing in an increasingly complex world. 

Let’s note that all of these other professions resisted regulation in the past. For example, doctors resisted the use of key performance indicators, and this led to Harold Shipman being allowed to kill so many of his patients. Proper use and analysis of death rates – now a KPI – would have spotted this issue at an earlier date, thus saving many lives.

We seem to be saying ‘we do support regulation but just not of us. We’re different’? But of course, we are not different.

The time to be anti-regulation has long gone. Now is the time to deal with two consequent issues:

The first is to do with the quality of the regulator we have to deal with. As IFAs and planners, we should welcome higher standards, increased professionalism, treating customers fairly and all the rest. 

But we do have the right to expect the regulator to live up to these standards as well.

The regulator must understand who it is regulating and how intermediaries work. If that means welcoming individuals into our firms to understand what we do and how out of touch some regulation is, then that is what we must do.

Perhaps behind the recent changes to capital adequacy is a dawning realisation on the part of the FCA that having an extra £5,000 or £10,000 in a bank account, which can be removed at a moment’s notice, does not protect consumers. 

Having a robust, profitable business, with an underlying income stream and clear investment processes does protect the consumer. The FCA’s Rory Percival gets it. How many others in the FCA do?

If they do, then perhaps some joined-up thinking will result, with regulatory attention being focused on those companies that continue to produce failed products and funds.

My second suggestion is that we should endorse the need for a trusted adviser standard, which means accepting that buyer beware has failed and that the past 25 years of regulation has been a failed attempt to make it work via increasingly complex disclosure regimes.

It hasn’t worked for us or our clients. We have been forced to irritate clients by making them sign to say they have read and understood, when they clearly have not and do not, and they say, “I just have to trust you”. Regulation and human behaviour do not match, which naturally creates tension.

If we could be regulated as trusted advisers, taking formal and legal fiduciary responsibility for our advice, with no need for caveat emptor, consumers would be better served and the cost of regulation on our firms would be lower – especially FSCS levies, but that’s another story.

Phil Billingham is director of the Phil Billingham Partnership



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Biggest load of B—–+@ks, I have read in a long time

    I think you may be confusing regulation with the FSA/FCA ?

    To be honest I think we need and benefit from regulation, its the regulator who continues to treat the consumer and advisers like children. They have stopped regulating and morphed into some kind of Stasi police force, we have no opinion, no voice and very little money left in our pockets !!!

    This statement is not one of my 5 a day !!

  2. I do not have a problem with your underlying reasoning, Phil.

    Where I do have a problem is that it should not just be Ryanair that is excluded from your reasoning. It should also be the FCA and FOS.

    And whilst other airlines are available, other regulators/dispute resolution schemes are not.

  3. DH, I have to disagree with your first line which is a strange comment in light of the fact the article is saying pretty much the same as you, but in more diplomatic terms. Phil’s comments make the point that he’s only aware of one individual within the FCA that “gets it/us” – the rest don’t, that the regulator must understand who it is regulating and how we work, hence, the reference to allowing them to come and work with us and observe for a day or two. Ultimately, the suggestion of regulating us as trusted advisers still means regulation, but a more sensible, thought out version by a regulator that understands how advisers work, how their business models operate and what their clients want and expect.

  4. It’s not just us.

    Apparently business cannot be trusted to do the right thing with out a regulator.

    We appear to want business to be run with the ethos of a well run public institution but have little trust in those either as all of them come replete with their own regulator too!

    Many of the regulators don’t function very well it seems to me and add a few showboating polticos to the mix for a total car crash of unrealistic expectation and confusing, mutually incompatible agendas.

    My suggestion is that each person, no matter how they live and work, should have their own personal regulator. At a stroke we’d solve the unemployment crisis and ensure the 50% of the population with a job were properly policed, ensuring correct consumer outcomes for all.

    I am the Reverend Ndabaningi Sithole and I claim my £5.

    Enjoy your weekend :-).

  5. Phil

    I’m afraid I find your logic flawed.

    Let’s take some of your own examples. It seems you are not keen on Ryanair. Neither am I. They don’t get the chance to put things right if they go wrong – simply because I won’t use them. I follow Caveat Emptor in this respect.

    I genuinely believe that we should have regulation and overall it has done some good things. No more window cleaners and milkmen selling policies. Somewhat better products. By and large the death of direct sales and the high pressure techniques of Trevor Deaves and Roger Levitt. I also happen to think that there are elements of the RDR that are worthwhile.

    However there has been a lot of regulatory rubbish. They haven’t really prevented the major disasters. The cost benefit analysis doesn’t nearly bear scrutiny.

    I freely admit to having a hypocritical view of regulation. That’s because the regulation as I perceive it is hypocritical. Different regimes for mortgages, different rules for life assurance.The unenforced divisions between independent and restricted. Execution only. Retention of commission in certain circumstances. The inane focus on the cost rather than the value. Fines that bear no proportionality. Barclays get fined a few million – that’s pehaps 0.01% of ther turnover or profit. An IFA is fined £10k that is easily 10% of his turnover or profit. The fact that there is a revolving door between the big four and Canary Wharf and that in fact much of the regulation comes from these ‘consultants’. Their ‘do as we say, not as we do’ attitude is grating in the extreme. So there is plenty to be hypocritical about.

    I also disagree about your point on Capital Adequacy. There are too many men and firms of straw. We advise people on significant sums and we at the very least should have a pot to pee in. £20k is by no means a large amount of money in the world in which we operate. That Limited Companies have to have it swishing around doing nothing is another matter – and rather highlights the unimaginative mind-set of the regulator.

  6. Phil Billingham is completely off the main points. Regulation is a necessary part of any operation. However, it should be within the ordinary legal system. However well meaning, Regulators having the power to act outside our normal laws are as bad as any other totallitarian system.
    1/ They should be qualified to, at least, the same standard as those reulated:
    2/ They need experience before appointment:
    3/ Those regulated should be able to appeal decisions in the usual way:
    4/ Individual Executives, Managers, Ajudicators, and Ombudsmen should have to explain themselves in court; needing to produce evidence to support their decisions.
    5/ All normal laws should apply: so that descussions on the ‘Long Stop’ become irrelevant.

  7. I find myself agreeing completely with Harry… sorry Harry.

    One point – Phil’s second suggestion has existed in practice since 2001 since the COB rules came into existence. To all intents and purposes they abolished caveat emptor because they required advisers to act in the best interests of their clients. Trust comes by other means, usually deeds. The problem is not the trusted advisers, it’s the ones that can’t be trusted. This is exacerbated by the fact that the regulator treats all advisers as the former and regulates accordingly.

  8. Sorry Phil,I cannot agree at all with your basic premise .IFA’s are in favour of regulation,but the crux is that its good regulation,its fair,and its well thought through, with ALL parties in mind.So much of what we see is not joined up,knee jerk or purely for the civil servant style box tickers and so little of it helps the IFA client relationship in a positive way.The regulator largely ignores IFA’s ,that’s the problem,as if they are effectively there to “do as their told” and does not treat them like a business who perform a useful function. Lets have some though ,some co-opereation and someone who understands small businesses not just the banks and the likes of SJP (who by pass so much of what the regulator requires of an open transparent adviser) .Be honest IFA’s are not the problem ,they are smart ,adaptable,innovative,qualified (recently as well!) and largely honest ,ethical and interested in the best outcome for their clients.Some are not ,but the same could be said of some Dr’s,lawyers politicians,journalists and even the police it would seem!

  9. Thanks for the feedback everyone, especially those that read the article!

    To clarify and simplify the points I was trying to make:

    We still hear far to much opposition to regulation, and a return to Buyer Beware. This is simply not going to happen.

    I agree that the regulations as they are means we should have a duty to act as Trusted Advisers. Many Advisers simply do not accept this duty and continue to think and act as Product salespeople. This has led to the distribution of frankly shocking products and funds and much harm to consumers. This, in turn leads to lower levels of trust in us as a profession by consumers, and harsher regulation.

    If we want to be trusted, we as a profession need to be seen as more trustworthy, and less visibly antagonistic and hostile to regulation

    I fully agree that Regulation should indeed be smarter, and more focussed on the business models and behaviours that lead to consumer harm. There is some small evidence this has started, but we have a long way to go.

    But we will not get there by pretending Advisers are all paragons of virtue, and that we should be regulated as a group based on our own perceptions of our personal integrity and trustworthiness.

  10. Hardly anyone has ever claimed that the FS industry doesn’t need regulation to protect consumers from unscrupulous, commission-driven and/or incompetent practitioners. The problem is the regulator and the way in which it mis-prioritises the allocation of its vast resources, imposing endless new layers of rules and regulations on everyone so that we all end up being regulated according to the lowest common denominator. Small firms are over-burdened with excessive tonnages of red tape and reporting procedures that achieve little if anything of any practical value, least of all enhanced consumer protection or “better outcomes”. They just tick more boxes.

    Meanwhile, the regulator fails to identify and to take swift and effective action on the really big issues before they become massive motorway pile-ups, which it then regulates by hindsight. Of this there can be no worse example than the epidemic mis-selling of PPI which could have been largely avoided had the FSA formulated and then enforced clear, unambiguous guidelines, not least establishing and documenting such simple parameters as suitability and whether or not each customer actually wanted and was prepared to pay the asking price for this cover. It’s so simple that a class of 10 year olds could probably have worked out an appropriate set of criteria, yet the FSA failed and failed massively to do so, whilst kicking seven bells out of the little guys. Worse still, it’s exempt from being held to any sort of account. Meanwhile, we have to endure inane and patently mendacious claims from the likes of Tracey McDermott that the FCA doesn’t want to over-burden small IFA’s with compliance, despite the fact that that’s exactly what the FCA is and continues to impose.

    Yes, the industry needs regulating but it also needs accountability on the part of the regulator. As things presently stand, the regulator remains free to set its own agendas, charge the industry whatever it feels like charging for the imposition of those agendas and gets away scot free with an endless succession of oversights and failures because it’s been looking in the wrong direction. It’s hard to imagine a less healthy state of affairs. If Phil Billingham can’t see that, then he shouldn’t be writing columns such as this.

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