The first thing that struck me about the newly liberated Rory Percival was hit bold choice of hat. Dark, almost racing green felt, with a brown band, it deserved an immediate mention as we shake hands outside a Fitzrovia tapas restaurant
“It’s my new hat, literally and metaphorically,” the FCA’s former advice market specialist chuckles. It’s his second day running his own consultancy after more than a decade with the regulator.
His new business went live on Tuesday 1 November. Having left the FCA just the previous Friday, he’s already busy, with conference engagements lined up with the likes of Intrinsic, The Society of Financial Planners in Ireland and Discus, as well as a new training deal with support service provider Threesixty.
While Percival will do specialised consultancy work, he will mostly focus his new venture on speaking, training and writing regulatory guides.
“To be honest, I was hoping to wind to 75 per cent,” he admits. “February looks like the first quiet month.”
But does he feel like he left any unfinished business at the FCA?
“There’s a little bit of that,” he admits.
He’s talking in particular about the regulator’s work on platform due diligence that Percival fronted earlier this year. Though firms were generally able to demonstrate adequate processes, others put convenience over client needs, despite the regulator having previously warned several times against doing so.
“I was heavily involved with platforms from the start, so I have a little bit of personal attachment there,” says Percival. “It’s frustrating that that isn’t any better, that’s an important area and a good demonstration of where firms aren’t employing proper challenges”.
“IFAs understand what it means to be a professional industry. There’s ethics on the one side along with knowledge and competence on the other. That’s the bit where it’s not just a tick box. Platform due diligence is a good demonstration of the ethics bit not working.”
He tells an anecdote from the work: One business he visited chose their platform eight years ago. When Percival asked when they last reviewed their choice, they replied: eight years ago.
“They used the classic line that they’re clients don’t like change. It was to me the firm saying ‘we don’t like change’.”
Today is my last day at the FCA. Feeling a bit sad.
— Rory Percival (@rorypercival) October 28, 2016
Percival timed his exit to coincide with the completion of the regulator’s current review in to advice suitability.
The results are in Percival says, but he’s keeping his cards close to his chest for now; mainly because the regulator itself has not yet decided how to take them forward.
Percival stresses it’s not just suitability reports, but fact finds, risk profiling and everything else that ties into suitability that the regulator wants to cast an eye over.
“That’s a hell of a lot.”
“We did say something in our business plan, that one of the priorities for the advice market was suitability, not there was a whopping great bit of work. You can understand why people didn’t pick up on the size of the piece of work.”
“The thing with the regulator is it takes a long time to do stuff, there’s a lot of process you need to go through. Analysis usually takes a long time, then there’s everything about what are the communications plans, what are the key messages, then its agreement about what we are going to publish.”
“It’s got to go to policy, to lawyers to check it fits with the rules, up through managers and the head of department and frequently up to the chief executive’s office.”
Right, that’s it; I’m out! #unshackled
— Rory Percival (@rorypercival) October 28, 2016
At least it will go through a plain English check, he says, which might help clear up a lot of misconceptions he feels advisers have about the regulator’s approach to suitability reports.
“There are a lot that are still heavily templated. I just don’t get it because they put all this stuff in to protect against the FCA and FOS. But the FOS say no you don’t need this. The FCA say no you don’t. If you wanted to defend yourself but do the opposite of what they say, do you defend yourself against the FOS and FCA?”
Percival says he has seen examples of suitability reports including half a page on the lifetime allowance for someone with only a £20,000 pension pot, or with five pages on retirement options for someone just starting their pension at age 35; unnecessary information from his perspective as a regulator.
“There are misconceptions going back to the Personal Investment Authority of a tick box approach. It’s hard to knock that down, those habits get ingrained.”
“The thing with the regulator is it takes a long time to do stuff, there’s a lot of process you need to go through.”
Suitability reports are not the only area where advisers have misconceptions of the regulator, Percival feels.
For one, he says their expectations of what radical change the regulator could make through the recent Financial Advice Market Review may have been “unrealistic.”
“Personally I think there’s some unrealistic ideas involved; I’m not talking about the FCA and Treasury I’m talking about the advice community. I wonder whether they thought there was a magic wand to make our rules disappear and make their lives easier.”
More generally, he is sceptical about adviser arguments on how much regulation is costing the market.
“A lot of the costs of advice are not regulation they are the cost of professionalism. In the grand scheme of things the vast majority of things advisers do on a day to day basis, sitting with clients, researching solutions, writing to them, probably 95% of what they do that’s the cost. If the FCA disappeared tomorrow, if they want to hold themselves out to be a profession, they would still do those things properly.”
“They are giving clients a complex thing, it’s going to be expensive.”
Finally, he hints that debates over the merits of restricted versus independent advice may have been overplayed.
“In the ideal situation consumers understand up front the costs of services and will pick the ones that have the best value for money. That’s going to apply whether it’s restricted, independent or vertically integrated. But consumers don’t do that and I have my doubts about whether they would.”
“A lot of the misunderstanding of the regulator is it favours that area or this area: the big banks and get rid of the smaller IFAs because it’s easier, say. Some of the people that do write on comment threads show an inordinate lack of understanding about how the regulator works and what it wants to achieve.”
“When it comes to SJP as a proposition they’ve got a fantastic business model. Not saying everything is perfect about them but their proposition is very well designed. They have good branding, the customer journey feels like you’re getting an M&S service, the materials they use feel impressive.
“They take a knock on charges but from the regulatory perspective so long as you’re open so the client can judge whether they get value for money.”
“Some of the people that do write on comment threads show an inordinate lack of understanding about how the regulator works and what it wants to achieve.”
Though he’s still in touch with a few old FCA colleagues (Percival and his successor Chris Hewitt will keep going to watch Saracen’s play rugby), Percival has bound himself not to talk about any upcoming projects he already has knowledge of.
However, that does not stop him having a guess in his capacity as a market observer as to what the regulator might do next, starting with a potential look at how competition is working in the advice or platform space.
“The FCA has a competition context that the Financial Services Authority didn’t have,” Percival says. “They have a competition department but there’s only so much they can do. Logically at some point they will get round to looking at competition in advisers and platforms.”
Reading between the lines on recent announcements, he also hazards a guess that the FCA may opt for further action on unregulated introducer firms.
“I understand what the regulator means by the way it says stuff. What it was saying was go anywhere near these. I don’t recall having seen anything quite so strongly worded as that.”
“I think there’s some advisers who come up from time to time recommending a Sipp to facilitate unregulated investments within that and think they’re not on the hook. The FCA put out a notice saying they are a good three or four years ago.”
As for the Financial Services Compensation Scheme funding review, he would opt to offset compensation costs with fines levied by the regulator. Currently these go to the Treasury.
“It’s as close to polluter pays as we can get,’ he says, ruling a product levy out because the costs would fall on consumers.”