“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 Booking.com 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