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Running on empty

In producing its retail distribution review proposals, the FSA has penned the longest suicide note in history. After all, a regulator is no longer a requirement when there is nobody left to regulate.

Having failed miserably at persuading the banks to conform, the FSA now seeks to maximise disruption in the world of personal financial services.

In seeking to make an exact science out of the nebulous and ephemeral, it is as guilty of vandalism as any spraycan-toting lout trawling the streets of our cities.

A flavour of what this means for advisers can be tasted by reference to the congratulatory noises from the Association of British Insurers and the British Bankers’ Association. Conversely, the outspoken and disapproving response from the normally amenable Chris Cummings of Aifa sets the tone for the everyday jobbing IFA.

What has happened over the past two years? Has the FSA has been hoodwinked by the BBA and the ABI into believing that this is the way towards its ultimate goal of financial nirvana?

Sadly, the armchair theorists and the vested interest groups have embarked on a course that will have massive negative repercussions for advisers and for the very people they are entrusted to protect – the consumers.

The official basis for these deliberations is the rebuilding of trust and confidence in financial services. Having read the entire RDR tome, I am left wondering how we can ever hope to rebuild trust and confidence in the current regulator. Perhaps a change of Government is the only hope.

Let us consider who the RDR winners might be. From the outset, the banks have been singled out for special treatment. One only has to recall the invitation extended by FSA director of wholesale firms Dr Thomas Huertas in June 2007: “Commission-based distribution arrangements tend to lead to conflicts of interest and may result in misselling. How do we solve this conundrum? We are genuinely interested in working with banks to find a way to do so.”

The banks have been dangled the carrot of FSA assistance in the design of new services – a perfumed phrase for our old RDR friend, primary advice.

Those insurers which sell through multiple outlets will seek to maximise profits from the aftermath while exploring new tied and multi-tied opportunities.

Why are the ABI and the BBA so happy? Within the publication, a number of clues can be found. Page 45 advises us: “We emphasise that we do not view independent advice as necessarily the best service for every consumer.” On page 62, we are informed that the FSA is “ready to help firms develop their proposals for new services within the current regulatory framework”.

December 31, 2012 is the date that advisers must gear up to if they want to be included in the FSA’s Olympic team. All “unqualified” or “non-compliant” advisers will then become history as surely as Sebastian Coe’s world mile records.

Who will fail to gain a place on the Olympic team? Who are these losers? I suggest any consumer who is apathetic, any consumer who fails to place a value on independent advice, any consumer who naively believes he can trust his bank or building society and any consumer who will not agree to some fee basis. Oh, and around 50 per cent of the IFA community who cannot, do not want or refuse to accede to the new regime.

Now, I am sure that consumerists will clap their hands in approval at a structure that seems to offer greater clarity. However, will these same enthusiasts caper so gaily when it becomes clear that the cost of accessing independent advice proves beyond the appetite of the majority of consumers?

These, of course, are the very same enthusiasts that applauded the introduction of stakeholder pensions as a big step forward when it has subsequently proved to be three giant strides backwards.

What is more, this self-evident truth is actually accepted by the FSA, as page 76 informs us that fees for small-size cases will become proportionately high to the detriment of consumers.

So there we have it, a blueprint for financial services deconstruction. An invitation to reinvent oneself or face extinction.

What about the 15-year long stop? Actually, it does not matter any more. After all, how many reading this will still be trading in 15 years time to even care?


The unauthorised version

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