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The joke’s on us

Sir Callum McCarthy was asked last week whether his views had changed on the retail distribution review since he made his speech at Gleneagles in late 2006. He said the wider world felt a very changed place since he made that speech and that he had thought it important back then to focus on whether the business model served the interests of the industry and its consumers but that there was still no definitive answer to that question.

How long did he think it would take, I wonder, and how deeply did he think about the solution before he threw the industry into indefinite planning blight?

Later, his colleague David Kenmir joked that two years is not much time compared with the years it has taken the industry to get to the current situation. This was a very poor joke that was perhaps indicative of a level of bureaucratic smugness endemic at the top of the FSA, despite Northern Rock and the RDR.

Worse still, chief executive Hector Sants said no one in the industry has come forward with a workable solution.

An IFA might respond: “Callum, you should have thought a lot more deeply before you went for the headlines. David, the FSA and its predecessors have controlled us through 21 years of failure and scandal. Don’t tell us we got into this mess, when you and yours led us here. Take collective responsibility for our collective failures, don’t joke at the expense of those whose business growth prospects and valuations your meddling and vacillating are ruining.

“Hector, you are just plain wrong. The industry has come up with a clear proposal as to how it should look to best serve consumers. That proposal is understood by the FSA team that received it, it shaped RDR2 and if it is seen through from concept to execution with consistent intent, it will reform retail financial services distribution so it serves consumers best.

“However, you broke up that team, so now the FSA swings again in this dying Treasury’s wind. Not a nice spot although perhaps the money and pension make it tolerable.”

The pressure systems that cause that wind in Whitehall are clear. The banks will plead for mercy with the threat that were the Treasury to have to rescue another one, the strain would leave our economy in need of some seriously vote-destroying medicine. No minister will be keen to do anything just now that might make a bank even less profitable. If consumers get a bit ripped off, they merely serve the greater good.

So the bank lobbyists will be listened to when they plead for tolerance of shady retail profit streams. The markets have reformed their lending behaviour dramatically and there is only so much reform a business can take at one time, so they will argue that this is a poor time to fine them heavily for past and continuing payment protection insurance rip- offs or demand they further reform their wider financial services sales processes.

To serve consumers and the industry, the Financial Ombudsman Service, the FSA and the Competition Commission must challenge that statist approach (what’s good for the country is good for the individual) as no more than another stealth tax. Were the Treasury to accede to the banking lobby, it would in fact be saying: “You prop up the banks by allowing them to overcharge so we can keep spending too high and try to win another election.” That is no less a short-term taxpayer rip-off than a fiddled MP’s expense claim and the FSA should have no truck with it.

Banks will be working hard to ensure that their salespeople can keep calling themselves independent advisers when they are not, so consumers keep dealing with whoever they first find that seems trustworthy, rather than having clear titles, supported by clear standards and rules, so they can better decide what type of intermediary they want to deal with.

Clarity of thought – as exemplified by RDR2 – is being ditched in favour of pragmatism and compromise designed to keep happy those who serve lots of customers badly.

Ironically, in the light of David’s joke, the heart of the issue is the same lie that sunk Equitable Life a lot more than two years ago. Salesmen from big institutions still misrepresent themselves at will when they cannot act as agents of the client but only their employer. They tarnish us all.

I wonder why Hector and David cannot see how good a place financial services would become if they finally stopped that big lie?

Tom Baigrie is managing director at Baigrie Davies Lifesearch

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