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Responsible thinking

Earlier this year, I met an IFA for a drink. As sometimes happens after the second or third pint of Guinness is going down nicely, we started swapping war stories, with me telling my adviser chum a few of my greatest editorial cock-ups and him confessing to some of his finest moments in front of a client.

Inevitably, when you are entertaining a mate in a pub with a good tale, the tendency is to miss out on the boring bits. Everything becomes embellished and the “true story” of what really happened is lost in the re-telling.

What struck me was that my friend appeared to have two main classes of client. The first was the supposedly “knowledgeable” type, whose vast array of information is culled from vaguely remembered and half-digested articles in various newspapers and magazines or out-of-date websites.

The second type of client was the completely ignorant one, who needs his hand held firmly as he struggles to understand how a unit trust works, what investments are in his portfolio, the type of mortgage he has or what kind of protection would really suit him and his family.

I felt vaguely sorry for this IFA. Where was the other category, the clued-up client able to discuss various financial planning options in an intelligent manner with his or her adviser and then make a satisfactory decision based on all the available facts?

It was only in hindsight that I understood a vitally important truth – of all the client types out there, my friend actually prefers the most stupid ones. They offer him the blank canvas he needs to create and deliver his most stunningly elegant advice plans and are least likely to question what he tells them is best for their needs. Yes he is careful to ensure his advice and any transaction are properly documented and explained, with alternative options noted and discounted. If the FSA were ever to call round and ask to see a random selection of files, there is no question they would applaud his thoroughness and skill.

But the fact remains that while the client himself may appreciate the big picture painted for him by the IFA, he understands relatively little of the many nuances that can make all the difference between supremely good and barely acceptable financial planning.

I was reminded of my friend last week after the FSA published a 21-page document on the feedback to its earlier proposals on the appropriate balance of responsibility between consumers and firms in the sale of financial products.

The feedback statement follows a discussion paper at the end of 2008, in which it looked at consumers’ own responsibility in its decision and policymaking. The original document was prompted by a report from the National Audit Office a year earlier.

This suggested the FSA should identify the responsibilities it wants consumers to take on when interacting with the financial services markets and how its financial capability programme, alongside other regulatory activity, will help to equip consumers for these responsibilities.

However, the FSA’s statement last week says: “There is no broad consensus amongst respondents and stake-holders on what consumers’ high-level responsibilities might be at common law.

“We also note that some firms view the current balance of responsibilities to be skewed in the consumer’s favour, while consumer representatives have argued that consumers do not (and should not) have responsibilities in the sense that firms do.”

The FSA says it will keep to its current stance after the industry “failed to reach a consensus” on what buyers should be accountable for. It is proposing instead to expand its existing financial capability work, aimed at less-well-off consumers as well as continuing its financial education activities, including its website, work in schools and with young adults.

Inevitably, the FSA’s decision is bound to upset many IFAs. However, it is interesting that leading IFA trade bodies, which presumably would initially have backed calls for a much tighter redrawing of consumer responsibilities, have so far remained silent on the feedback document’s conclusions.

It is not hard to see why. The NAO’s desire for a codified set of consumer “responsibilities” was always unrealistic. Apart from anything else, it implied that human beings were little more than automatons, able to assimilate information they were given on an equal basis.

It also assumed that the FSA’s regulatory activities and its education programme ought to achieve specific targets on an educational continuum, regardless of the individual characteristics of those it aims to help.

Yet, as even the FSA recognises, it is one thing to aim for improved consumer understanding of their financial needs and quite another to then presume that consumers will reach that level – and having reached it, they can then be required to take greater contractual responsibility for their financial decisions. The real world doesn’t work like that.

The shame is that yet another futile demand is made of the regulator by people who ought to know better. A bit like the equally irrelevant demand for a 15-year long stop, funnily enough.

Nic Cicutti can be contacted at


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