Open letter to Treasury Financial Secretary Ruth Kelly
I am a retired IFA. I and about 500 others helped form the Life Insurance Association, played an active role trying to get North American-type regulation introduced and was at one time a member of the Labour City committee. I was a trade union official and was briefly employed by the TUC education department.
I came into the life insurance business for a number of reasons. My father was sold the wrong type of policy, Britain was and still is substantially uninsured and unpensioned, there was and still is much ignorance concerning financial matters, Britain was and still is badly deficient in the skill of sales and financial services was an area where a lot of help and advice, often unpaid, could be offered.
Now media comment, mis-management, irresponsible consumer lobbying, expansionist regulators, populist ministers, dumbbell insurance company directors and managers have screwed it all up so that nobody is trusted any more.
The savings ratio is down, current consumption denies pension provision, £50 is spent on designer jeans when £7 buys a good pair, justice has been perverted in the name of consumerism, career openings have been trashed and a big chunk of the enterprise economy has been butchered.
The financial services sector which balances our overseas payments against failing manufacturing is pushed around like modelling clay.
Power and influence have been transferred without responsibility. Uninformed media hacks will run any story and headline it a crisis, drama, or scandal.
These have become the new financial advisers, taking one aspect of a situation, printing 10 per cent hard news and 90 per cent fabrication – exactly the opposite of what independent advice is all about.
Creating a popular cry for more regulation, they omit the next part of the problem – how to manage the regulators. They have helped put together a monster which now threatens the freedom of the press. The outcome is always the opposite of what was intended.
Information is key. We are not getting it. The populist clamour for compensation for alleged endowment misselling is a good example.
Meanwhile, the Consumers' Association had helped change the rules. They argued that huge profits on endowment mortgages were wrong, savings should be split away. The industry responded with low-cost endowments which were not guaranteed like the old ones and the CA offered them as best advice, pointing out that premiums would have to go up to meet shortfalls.
Now the CA advises its members to claim compensation for taking its advice. The separate savings plans of whatever type are ignored. We have single-issue claims without reference to the whole of the financial package, a common fault of regulators, pension claims included.
Ask why, when the FT All Share went down to 150, there were no endowment shortfalls. House purchase overall is an investment, otherwise people would rent, as they do in Europe. There are multiple risks in house purchase and in mortgages.
We used to have a checklist of over 50 items to cover and cheap premiums on endowments was one of them.
It is ridiculous for the CA to pretend their members were unaware they were investing. Instead, along with the FSA, they have created a cheaters' charter.
There is no need to go before a district judge, who will spot a liar at 100 metres. The case goes before a regulator with different career ambitions. We now learn the FSA has retrospectively overturned the previous regulator,Lautro's rules, that records can be destroyed after six years and that endowment compensation cases can be brought before regulators more than six years old, where the defence have no papers at all on the case.
This is a gross distortion of justice in the name of consumerism.
The other major distortion is in the professional indemnity market. Premiums are up in every direction. Businesses have closed down, sports clubs are threatened, all in the name of something-for-nothing compensation induced by a regulator out of control.
Who wins? The banks will be the only ones able to meet the costs of bringing in new people to financial services under a 1 per cent price cap and will do it to eliminate competition until a future Government increases it or abolishes it.
The market should determine its own costs while risking its capital.
Who loses? Thousands of insurance clients are left without advice or service, especially those on lower incomes.
The best bet is to free up the insurance industry from regulatory shackles and encourage long-term employment so that advisers can stay with clients for a lifetime and avoid the the constant changes of people and policies brought about by the regulation-a-day FSA. Creation is harder to do than destruction – let those who know get on with it.