Back in 1987, the key decision was taken to regulate advice, not products. It was understood that regulation might stifle creativity and it should thus not apply to product development but simply ensure that whatever product was invented it was sold properly. All sales were seen as advised then, the execution-only or non-advised market hardly existed and it was the duty of all sellers to ensure that what we sold was suitable for our customers.
As with any attempt to regulate, this seemingly sensible logic caused consequences that were the reverse of those intended and the centre has proved incapable of moving fast enough to adapt sensibly to market development. Indeed, they perverted that change because the regulations became the driver of it, not the market’s needs. That is a key reason why the most successful IFA is one that does not give advice and the next most successful advisory business is a tied agency that all its customers see as independent.
That 1987 decision forced the word “advice” to take on a meaning in UK financial services that it does not have in the dictionary. It was linked to suitability of outcome in a way that consumers never had explained.
Regulation demanded ever increasing quality to earn the name adviser in financial services and those of us who obeyed them were dupes because the FSA never fulfilled its part of the bargain, they never properly promoted the concept and they destroyed the profitability of advisers so that they could never overcome the efforts of the sellers who were not advisers to do all they could to conf-use both concept and public.
Every consumer under-stands that to make advice useful, they need to filter it through an understanding of its source. But in financial services consumers’ filtering has proved horribly inept. Imagine buying a 25-year savings product from a person selling you a house. Or debt and insurance from a TV showroom.
But despite 22 years of regulatory effort, people still buy the wrong financial services things and today that error manifests itself as possibly the worst one of all – they do nothing. That is the terrible unintended consequence of regulation.
No pensions being built up, no income protected, equity products bought mostly near the top of markets and savings bought from dodgy banks approved by the regulator. Each attempt to improve consumer outcomes by seller regulation has left consumers behaving with less common sense.
With the RDR, regulators recognised that their demands on the word advice were key to this failure and sought to replace it.
But there are no suitable words because you cannot rewrite the dictionary, unless you catch the market mood to perfection and market the change you seek with equal brilliance until it becomes a dictionary definition itself.
Teenagers and Facebook and the like find this easy. They can make “wicked” mean “good”. But regulators and men in suits simply cannot do it, for our motives are controlling, not anarchic, and so we are ignored by all.
So perhaps it is time to give up and change how we seek to improve consumers’ lot. Educate, don’t regulate. Now there’s a slogan.
Tom Baigrie is managing director of Lifesearch