You do not need to search far in the advice industry to find strident views on the malign impact of regulation. There is almost universal belief in the FCA and its predecessors’ ability to overburden advisers and punish the vast majority of the good for the ills of the few.
For new Sandringham Financial Partners chairman Barry Kayes, the current climate is more sinister still.
He says: “It’s no different to China thinking it can buy its own shares and buck the market, or Saudi Arabia trying to rig the oil markets to squeeze shale gas providers.
“When you interfere, history shows you the market will come back and bite you to compensate.”
Kayes says the Government and the FCA’s approach to regulation is in danger of squeezing out providers and forcing advisers into a corner.
He is better placed than most to assess the changing landscape.
For more than 40 years, Kayes has worked across the broad sweep of financial services at providers including Scottish Life and Friends Provident, support firm SimplyBiz, network Tenet and now restricted adviser Sandringham.
He says: “Twenty years ago I sat down with the chief executive of Axa and he said he was not sure if he wanted to be in the UK because in France the return on capital was 15 per cent, and in the UK it was 5 per cent. It’s bizarre that, all this time later, Aegon’s Dutch owners are saying they can’t hack it, Prudential is focused on selling more in Asia and Axa is looking at putting some of its UK business up for sale. All this tells me is the cost of doing business in the UK is very high.
“I’m increasingly concerned this one-size-fits-all approach to regulation will hurt the consumer. Banks don’t give advice anymore, advisers are finding it hard to stay in business because of levies and providers are stepping away because they can’t make money for their shareholders. This interference means there are fewer advisers and providers, so consumers’ need for advice and products are not met. It’s a death spiral.”
For Kayes, a better way of supporting consumers is to reduce the amount of damaging regulatory meddling and instead improve transparency.
He says the most important test of the success of the FCA’s review of the financial advice market, launched in August, will be whether ordinary people understand “what the rate for the job is”.
Once that is clear, says Kayes, “market forces come into play and market participants will have to justify what they are doing. It’s not just cost. Advisers and providers have to validate what they offer and what that is worth and why.”
Kayes wants the regulator to mandate all organisations to publish total expense ratios rather than “24 pages of information and terms and conditions consumers will struggle to understand”.
“It’s always been a challenge in financial services to compare products and services because you don’t have that tangibility. It’s not like when you buy a fridge and you can easily see what the difference in quality and price is between AEG and Hotpoint.
“Quite often you’re selling provision for the future – be it a pension, investments or protection – so you need an environment where it’s clear what the product does and what the cost of bringing it to market is. As long as that is clear you’ve empowered the consumer.”
While Kayes laments the shackles regulation has placed on the industry, rising costs and complex rules should play into the model of his latest venture.
Sandringham has around 135 adviser partners and aims to add another 70 or so before aiming for an IPO in three or four years. Kayes backs the control restricted status gives organisations, which he says is behind the success of Tenet, which he chaired between 1996 and 2006. When he left, adviser numbers had grown from just 200 to over 5,000.
“Restricted advice doesn’t sound very sexy but it restricts members from doing what they shouldn’t be doing. It’s a benefit, not a negative.
“The difference with Tenet was it was extremely centralised and underwritten – dotting the Is and crossing the Ts – whereas a lot of networks died because they didn’t have that control. Sesame’s downfall was not knowing what its members were doing. Tenet has stood the test of time and it underlines why Sandringham is such an attractive proposition.”
Kayes warns more advisers are falling into the “bear trap” of not spending enough chargeable time in front of clients. He gives automatic enrolment as an example where advisers are sitting on a “potential goldmine” but need support to exploit the opportunity.
“New Pensions Ombudsman Anthony Arter has said auto-enrolment will be the biggest problem going forward because SMEs are hitting their staging dates and they don’t know what they should be doing.
“The average adviser also does not know what they should be doing, so we have an auto enrolment specialist showing partners how to conduct that kind of advice. If they get it wrong they will end up with the Ombudsman shouting foul and taking action.”
Despite all the challenges facing advisers, Kayes is not convinced automation is the answer.
“Whenever I’ve been in a debate on robo-advice I come away with the conclusion you’ll not do better than sitting in front of a financial intermediary and getting advice. You can go to Tesco and buy a takeaway investment product but it will always result in a fair number of individuals in unsuitable solutions.
“With the demise of the welfare state and the demographic time bomb, never has the need for advice and appropriate products been greater.”
What’s the best bit of advice you’ve received in your career?
To help people feel good with themselves.
What has had the most significant impact on financial advice in the past year?
The escalation of regulatory costs and, particularly, the FSCS.
What keeps you awake at night?
I try to address problems when they arise as proc-rastinating causes stress and sleepless nights!
If I was in charge of the FCA for a day I would…
Reduce the regulatory paper mountain and replace it with user- friendly information for consumers, focusing on total expense ratios. I would persuade the Treasury of the vital role of advisers in helping the Government address the funding issues of the demographic time bomb.
Any advice for new advisers?
Maximise the time you spend with clients by joining an appropriate group that can provide the support you will need to do this.
2015-present: Chairman, Sandringham Financial Partners
2006-present: Non-executive founder director of the advisory board, SimplyBiz
2008–2011: Non-exec-utive director, Hartford Life
1996–2006: Executive chairman (from 2000), The Tenet Group (M&E Network)
1981–1996: UK sales manager, then assistant general manager corporate business development, Friends Provident
1961–1981: Clerk, then northern regional sales manager, Scottish Life