FSA retail distribution review
This is my third and final letter to you. I would like to say first of all, I have enjoyed our correspondence in the last couple of days, though it has of course been a little rushed and, I’m afraid, a little one-sided.
I am sure though, I will hear your thoughts soon. I have also – rather embarrassingly – got a number of points to make, rather than sticking to one subject, as I did with my first two missives on the banks and on churning/switching.
I would hate to sound like some desperate lover, trying to cram all the points I can into a last ditch plea, like begging a wife not to go off and live with a tennis pro or something. After all, I am merely trying to encourage a pause for thought about a review of retail distribution.
But if you have managed to get through the first 3,000 words of the other two letters then perhaps you will bear with me.
So, the first two points I am going to make are about generic advice and also to touch on financial capability.
I am not really a fan. How so, I hear the masses ask? Do you want to leave us living in ignorance? The answer is no, I do not. But I am a little cynical about the level of ignorance to found. It is not about whether generic advice is a good or bad thing. It is a shame it is needed. It is not about financial capability, though I still find that if you as good as promise consumers compensation for a missold or indeed “missold” endowment, they seem more capable than it at first appears.
Yes, they should be educated. But I have misgivings about funding too.
I would suggest that it is not fair to impose a poll tax on existing financial services users, which is the ultimate impact of forcing the existing industry players to fund things.
Consumers of financial services already pay through the nose for FSA, Ombudsman and Compensation Scheme protections. Are they expected to pay again for those not saving? Why should investors and savers pay, and the unthrifty or for that matter, the shifty, who have hidden their money offshore, not pay. But this is still not the crux of the argument.
My warning is really about the use of generic advice as an alternative to existing arrangements. No one has tested it yet. It is not wrong if it can be done. It IS wrong if you shake up, or indeed, pulverise existing channels and then say that is okay – generic advice or a low level of advice will fill the vacuum.
The last low level sales and advice channel that was planned in any detail was the brainchild of AMP – not exactly a UK financial services success story.
Many consultancies have said it is cannot be done in any meaningful way to make money. If it did make money, someone would have done it. It might just be possible to link it to existing structures – say using the technology of the very clever Mr David Harrison. But once again it is untested.
So, to promote it as an alternative in the midst of a reform is, once again in my humble opinion, unreasonable. I actually wish Mr Thoresen well with his work. And I hope schools bring in financial capability, but I suspect both will cost money. I just wonder how much it will be used as an excuse to show that “yes we are doing something” tomorrow. I would much rather someone had proved that it could be done first.
Finally my last point (probably to your relief, Amanda), and mine, before you get on with arranging the chairs and checking the microphone levels and sampling the sandwiches for tomorrow’s big meeting in Westminster.
It is this. You can see if what you want passes muster with the competition authorities. You can get economic consultants to present all manner of economic theory, too. You can survey all manner of levers at your disposal to make sure you get to what you think is your goal.
But if the reforms proposed are a strange mix of getting round legislation, closing loopholes or pulling levers – not designed to do what you are trying to make them do -then they may fail.
It shouldn’t be stuff dreamed up as a fine new plan. It has to make the relationship between the adviser and the client clear and in particular what clients are getting and what is paid clear. There may be ways to do this by changing the way commission is cast. But if it is lost in a 1,000 more pages required by the FSA lawyers and the compliance industry then it will not succeed.
Finally, if you abuse other FSA requirements – say increasing capital adequacy rules, not because you are concerned about capital adequacy and how it may hurt consumers, but because you can force twenty advice institutions to change faster than 20,000 then your reform will have a hidden agenda, and as such, you find yourself regulating against the grain.
Strange really. I actually believe we probably agree on the goal. It is just the means where we may diverge, I fear.
Anyway, on that rather depressing note, I will take my leave and disappear back beneath the parapet, which is the best place for editors, as I hope you agree. I wish you well. And don’t let those publicity hungry IFAs hog the microphone too much tomorrow.