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The 10% principles

The FSA is in grave danger of making advisers pay for its mistakes with the massive above-inflation increase in fees.

IFAs must ask whose fault is it that the regulator’s IT systems are in such a mess that outsourcing is needed.

Whose fault is it that, in its initial days, the FSA may have been overly reliant on rulesbased regulation and is now moving to principles and treating customers fairly complete with staff training and – wait for it – bonuses. But isn’t this lack of direction the regulator’s fault as well?

But was the rulebound FSA wrong or could the move to principles and TCF be wrong itself?

Former senior people at the regulator, including former managing director Carol Sergeant, who works for Lloyds TSB does not believe principles will work in the retail market.

So the extra charges for advisers are either required to pay for the FSA taking the correct course – something it should have been doing in the first place – or fees are rising to pay for an experiment. If Sergeant is correct and Tiner/McCarthy are wrong and this experiment fails, will fees rise again to pay for more retraining and a move back to rules-based regulation?

Finally, the fee rise is to pay for an increase in financial capability work. But why is this the industry’s problem? This is not a naive question. It may receive a naive answer along the lines of “the industry has been ripping off consumers for years so they should pay.” What, all the industry? What of the many advisers and firms who have done no ripping off at all – no ombudsman cases and very few complaints?

In addition, there are advisers who feel they have never been given the benefit of the doubt over false memories and endowment sales guarantees and all.

The other glib answer as to why the industry should pay 10 per cent extra is that everyone will benefit from financially capable consumers. This may be true. In the round, ethically run companies offering financial services will probably do better as there will be less risk of misunderstanding but there will probably also be more transfers and switches which is not good news for everyone.

There may be less debt, fewer repossessions and maybe more savings but then if more people switch what of the people who get left behind or will 10 per cent make sure everyone is capable in future?

Plucking another issue from the air, what if financial capability allows many people to make a decent assessment of means-testing versus the NPSS and personal accounts and choose to take their chances on state benefits?

These are just some thoughts on how there is anything but an easily identifiable link between capability and benefits to the industry. Still, that’ll be 10 per cent please.

The increase may grate with many in the industry but this newspaper has not been opposed to statutory regulation per se. Nor is it opposed to the industry making a contribution but there are massive concerns about accountability.

In a situation where the FSA either screws up, say with its IT, or is not sure what it is doing , say with TCF and principle-based regulation, then it should be accountable for any extra charges. In this case, those who are paying have no choice. There is a regulatory monopoly so above-inflation increases should at least have to be justified in detail to some body which guards the interests of those who pay.

The FSA may make mistakes and these may be costly but it should be prepared to explain why they were made and how they will not be made in future – in detail and in public.

As for financial capability, it should come out of general taxation – it always should have. The benefits to society are massive if the Government gets it right. Voters should get the chance to decide if it is something they want to pay more for than, say, defence or health. Simply dumping a 10 per cent poll tax on financial services will not be enough to solve the problem anyway and the FSA is not the right organisation for the job . But try telling them that – if the email works, of course. Bonus anyone?

John Lappin is editor of Money Marketing.


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