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The life of PI

Outgoing FSA chief operating officer David Kenmir’s work during the 2003 professional indemnity insurance crisis prevented thousands of IFAs going bust and he says it is his most satisfying achievement at the regulator.

In an interview with Money Marketing, Kenmir says developing a regime that allowed advisers to hold capital to cover liabilities rather than more comprehensive PI cover saved many small firms from being forced out of the industry.

He says: “We could have done that in a very different way by saying ‘Get more PI or you’re out’ but we probably would have had to delicense thousands of IFAs, which we did not think was the right outcome, so that was particularly enjoyable and at the same time a challenge.”

Kenmir has been at the FSA since its inception in 1998, first as director of authorisation, then as director of investment firms and later as managing director of regulatory services.

Reflecting on the past decade, Kenmir acknowledges the continuous hurdles that advisers have had to clear to adapt to the ever changing market and admits that some of the current regulatory trends are a throwback to past structures.

He says: “There is so much change in the market that IFAs are always having to run pretty hard to stand still.”
However, Kenmir says advisers are highly capable, flexible and more than able to evolve their business models to meet changing circumstances.

His response to criticism of the constant changes imposed by regulators is that long-term structural problems in the market need to be resolved for the benefit of firms and consumers. He believes the changes imposed under the retail distribution review will tackle some of the fundamental root causes of existing problems where other regulatory efforts have failed.

He says: “We would not have published it if we did not think it would make a positive difference. I think it is also true that there has been an awful lot more direct market input into the RDR process than in previous times.

“One of the things that has always struck me as odd about the way that commission structures currently work is that advice comes across as free for consumers. It has always struck me as being very odd that IFAs have not done much more to market the value of that advice.

“I am not saying the only model that can exist in the world is fee-based financial planning but it strikes me that those firms that are fee-based have actually sat down and thought about the value of what they are creating and how to interact with consumers in a way that makes it clear to them that the value is the service and the advice they get.”

He says the proposals to ban provider influence over commission in the RDR will help consumers to understand the value of advice. He says: “I am sure that as people think about what is in the RDR document, over time they will see it more as an opportunity to make them more professional, provide a better service to customers and be much clearer about the value of what the IFA offers.”

Kenmir acknowledges that European legislation played a part in determining the final RDR proposals, especially concerning the advice/sales split, adding that much of the FSA’s agenda has been driven by Europe.

He says: “We will always, as a core part of what the FSA does, end up implementing financial services regulation coming out of the EU. Once it has been enacted, we have got to get on and implement it.”

Kenmir believes the future for advisers is promising, despite the current economic climate because there is a big need for advice.

He says: “The continuing transfer from the state and employers to individuals means the potential market for advice is going to be much greater in future. We also have a long-term financial capability strategy. The more successful we are at that, the more demand we will create for advice because people will understand better where they need to provide for their futures.

“All that indicates to me that those IFAs that can work out how to maximise the opportunities that situation poses will do very well out of it.”

In July, Kenmir announced his intention to leave the FSA to pursue other career opportunities once a replacement has been found. He says: “Hector Sants is not far from the end of that process. It will be some time early in 2009.”
Kenmir plans to take a few months’ holiday to work out at the gym, take his kids to school and wave his wife off to work.

He says: “I am not planning to start work until next autumn. I have not got any solid plans but you will probably see me around financial services somewhere, not necessarily in the IFA sector but I would say it will be in finance. Of course, if your readers have any offers, they are welcome to get in touch.”

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