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‘The need for vigilance in the market never diminishes’

Labour Shadow Treasury Chief Secretary Angela Eagle believes the changes being brought in under the RDR are broadly right and will restore trust in the advice industry.

In an interview with Money Marketing, Eagle says that without trust, the sector will struggle. She says: “I think overall the direction of change is the right one for the industry, particularly to rebuild trust after all the misselling scandals. Without trust, the industry is on a losing streak anyway. The FSA is trying to focus the industry back on its customers.”

Eagle acknowledges concerns over an advice gap left by the RDR but says “less advertising, more information” on products should reduce the need for advice in the mass market.

She says: “If you are operating in a system where greater access to information has been achieved, the requirement for advice on every product would hopefully lessen because people could see clearly what they are being offered and the price of it.

“I think it was particularly invidious when commission charges and hidden charges were influencing advice or at least colouring it.”

Earlier this month, Association of British Insurers acting director of life and savings Helen White said the Parliamentary debate had “no chance” of changing the RDR and was “purely political”. Eagle says the driving forces behind the debate, Conservative MPs Harriett Baldwin and Mark Garnier, need to realise it is “the end of the process, not the beginning”.

She says: “These Tory MPs are newly elected so I do not want to impugn their motives. That does not mean to say any MP ought not be able to raise issues but I think they need to realise a great deal of work has been done in this area.

“This has been going on since 2006 and the FSA spent two and a half years reaching out to all of the people who are players in this area.”

Angela Eagle
Angela Eagle: ‘I think it was particularly invidious when commission charges and hidden charges were influencing advice or at least colouring it’

Eagle says she is concerned that the switch from a monolithic regulator in the FSA to the twin peaks approach will see supervision suffer.

She says: “My worry about the changes is they will cause a period of reorganisation and bits could fall through the gaps and people take their eye off the ball and you see a lessening of vigilance. The need for vigilance in the market never diminishes.”

Eagle, who was pensions minister under Gordon Brown, says the Government’s plan to provide a flat-rate pension is theoretically desirable, but difficult to achieve.

She says: “It is a very neat solution in theory but the devil is in the detail of how you get from here to there and that is before you talk about whether £140 is high enough.

“I do not see how you can do it without getting rid of contracting out for occupational pension schemes, having a long hard look at pension tax relief and a range of other subsidies that currently apply across the board.”

With a raft of reforms under way, from Health Secretary Andrew Lansley’s “deconstruction” of the NHS to the welfare system being “up in the air”, Eagle says the Government is taking on too much at once.

She says: “They are not thinking clearly enough about how different processes of change can sometimes combine and create capacity problems.
“They have all gone off and read Tony Blair’s biography and they all think they have to run out of the starting gates as quickly as possible.”

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  1. “The FSA spent two and a half years reaching out (what an ironic turn of phrase) to all of the people who are players in this area.” To which one might reasonably add “And refuses to take a blind bit of notice of what anyone has said which doesn’t accord with its own carved in stone agenda”. Why will the FSA not publish for all to see and to debate what the responses have been to its invitation to comment on its proposals? Many might well suggest the reason to be that it wishes fervently to conceal the all but deafening clamour of dissent.

    The FSA’s line of reasoning on so many fronts is perverse. Abuse of the commission system certainly exists, so the FSA’s solution, instead of tackling the scope for abuse, is simply to ban it for everyone, including the ethical majority (outside the bankassurance sector) who do not abuse it. A far better solution would be simply to switch from disclosed commission (which is frequently just glossed over) to Customer Agreed Commission, thereby requiring the adviser/salesperson to explain to the client exactly by what mechanism it will be deducted from the amount to be invested. But no, as far as the FSA is concerned, commission will be replaced with an Adviser Charge and there’ll be no option for indemnity terms. Of what value is that tp practitioners trying to advise the young pension saver with just a modest initial budget?

    Exams. A few surveys of limited scope have been undertaken which suggest that in certain scenarios, very probably more complicated and technically demanding ones, that advisers holding high levels of qualifications provide better advice than those holding only base level qualifications. For the FSA, that’s good enough to prove what it wants to see proven, so all advisers including those who do not advise on complicated and technically demanding scenarios must now get qualified to a level in many cases far beyond the scope of what they actually do. Never mind that the average GP IFA, if faced with advising on how best to deploy a once-in-lifetime half million pound pension fund would swiftly pass it on to a specialist colleague. As far as the FSA is concerned, they must all get qualified to handle such a rare case. Much of the content of these exams appears to be little more than an exercise in academic achievement for its own sake. Box ticking. Another common complaint is that the exams include questions not covered in the coursework.

    And then we have the significantly increased capital adequacy requirement. Why? Because the FSA’s never-ending succession of hindsight reviews has pushed up PII excesses to thresholds undreamt of just a decade ago, combined with the FSA’s perniciously obdurate denial of the protection of the 15 year longstop for complaints. Advisers will be required to set aside £20,000 which the FSA will probably never permit them to retrieve until their dying day because it might need to be called upon to cover PII claim excesses. What kind of justice is that? None whatsoever.

    Many advisers accept that the ills of the industry that the RDR aims to address are valid. What really grates, though, is the implementation, which appears to be aimed at forcing all advisers, both large and small, into the same one-size-fits-all straitjacket of the FSA’s idea of perfection.

    Out here in the real world, those at the coalface can see that it just won’t work. But the FSA remains hell-bent on steamrollering ahead regardless, all the while looking away from where the real large scale problems lie.

    And finally (for now) I still can’t get my head round the legitimacy of a regulatory body which claims to be entirely independent of government ~ despite having been created by Statute ~ and which is therefore accountable to no one but itself. Then again, if, as Hector Sants and SkidMark Hoban are so fond of claiming, the FSA were entirely independent of government, why are its top men called regularly to appear before the TSC to account for its litany of failures? It seems that the FSA is independent in matters which suit it but not, in fact, in others ~ in other words, a mendacious fudge of selectivity.

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