Reading the industry press these days can be pretty depressing. Glancing through an endless sequence of headlines about people, product and regulation, it is sad to think that this is a reflection of how introspective the industry has become.
I know that it matters who is running which fund, which network. We all need to keep up with product developments although I wonder how much value we add by constant re-engineering ofthe same old, same old.
And regulation? Well…
No, this is not another pop at the FSA. Recently, the industry has been demonstrating clear evidence of one of its most enduring competencies shootingitself in the foot.
Capital units, commission wars and compulsory regulation are all ills that we have brought upon ourselves, and each dwarfs, in the damage they have done to our reputation, profitability, and survival prospects, the damage done by each successive edict of the regulators about which we rant and rail. Yet still we dance as lemmings to the cliff.
The metaphorical foot at which we are currently taking aim? Principle-based regulation.
For years after 1988, we pleaded to be treated as adults. We begged for the right to exercise judgement. We wriggled under the prescriptions of an over-bearing adult. And then we stopped wriggling.
For now, we are so used to being spoonfed with the blacks and whites of rule books that we are struggling to adapt to the greys of principles.
This reality came sharply home to me when, hearing two practitioners discuss the respective launches of their menu documents, one complained: The FSA are useless. We kept asking how we were supposed to use it exactly, and they would not tell us.
No. I think they were expecting us to use our judgement. Now we are taking up arms against treating customers fairly. It is vague, retrospective, unfair, and firms are operating in a regulatory vacuum, unable to make decisions in the absence of clear guidance. Or, roughly translated – we have got to start thinking again.
Sorry, is that a problem? The regulators are right to insist that we all know what it is to treat our customers fairly. Yes, there are hoops we have to go through to satisfy the FSA that we have thought about what that means for our business, and that we have checked that our clients understand and want what we are selling them. And have sold them.
It may even involve some unpalatable options, like checking with a client that they still need that product we sold them all those years ago. The danger is that they might not. The upside is that they might just thank us for asking.
Are we seriously suggesting that we do not know what it means to treat our customers fairly and that giving it a bit of thought is a serious danger to our future livelihoods?
Or could it be a breath of regulatory fresh air? The position we should have been in 18 years ago?
Philip Moore, Principal, Action Consulting