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The real cost of regulation falls upon the public

Do we really know where we are going and are the people attempting to regulate us really aware of our world?

Our regulators tell us that we are too costly for the public and that we should be trying to encourage the lower income earners to save more money, and to be truly professional we must charge fees.

Logic tells me that the lower income earners are having enough problems trying to live, let alone enjoy themselves. Therefore, how can they be expected to save?

As for overcharging, if those lower income earners felt they could afford to save some of their earnings, I doubt whether it would be much more than £50 a month and, in fairness to them, it is reasonable to state that an Isa would be the most flexible savings plan for them to consider with its tax benefits, flexibility and the fact that we would be looking for a minimum of a medium-term investment and if the Government were to achieve their aim, it would more likely be a long-term investment.

Amazingly enough, as I am sure most IFAs will know, an IFA organisation will be paid the phenomenal sum of £1.50(3 per cent) for each month that the £50 is invested into the Isa.

If the IFA is lucky enough that the investor maintains the savings for a full year, the investor would have invested £600 gross and the IFA would have benefited from £18 initial commission in that first 12 months, subject to all the monthly premiums having been paid.

Allowing for the overall 5 per cent setting-up charge, which incorporates the IFA&#39s commission, and allowing for an 8 per cent net growth on the savings, the fund would be worth £615.60 at the end of 12 months.

The 0.5 per cent fund-based commission paid to the IFA amounts to £3.08. The most fortunate and overpaid IFA has therefore earned £21.08 on that item of new business in its first year.

Everyone knows that the cost to the IFA is considerably greater and that the lower income earner could not afford to pay a fee.

I am still puzzled by the press reports that I read of excessive commission paid to IFAs. I am also intrigued by the FSA&#39s definition of “professionalism” being applicable to those who charge fees. Yet in the Oxford Dictionary that is only one of five definitions of the meaning of the word “professional”.

As I drive to and from work each day, I am intrigued to hear numerous advertisements on various radio stations from solicitors who are offering to help members of the public with their claims for damages on the arrangement of “no successful claim, no fee to pay”.

Yet we are being criticised for using the “no sale, no fee” arrangement.

I also read recently that the Sandler report criticises the proposed “defined-payment system” for being too restrictive and not allowing advisers to work on a “no sale, no fee” basis.

Finally, it would appear that we are going to go back to the situation of pre-1987 where literally anyone could sell uncomplicated products.We have been through this scenario before with general business, where car insurance has been available via garages that sell cars and building societies and banks selling buildings and contents insurance when arranging mortgages.

Before the 1985 Act, our industry maintained a reason-able level of decorum as far as the outlets who were able to sell our industry products.

What we must not forget is that the introduction of regulation has seen a phenomenal increase in the costs of running our industry. It has imposed a situation where life offices have had to cut so many corners that such things as service for post-policy issue situations is practically non-existent, with large numbers of technical support experts having been made redundant to try and recoup the costs of the new regulatory regime.

The industry is over-regulated, it has become too complicated, too expensive and the public do not understand it. However, we, the industry, should be making it simpler.

If a majority of the recommendations from Sandler and Pickering are implemented, I will watch with interest to see if the FSA staff levels are reduced.

I would be very interested to know how many actual working IFAs earn £380,000 a year with all the perks that go with being the head of the FSA, including a 60th final-salary pension.

I wonder how long it will be before the public realise that the cost of protecting them has risen to such a level that it is now far greater than was being lost when they were mistreated by the occasional financial adviser, whether independent or tied. This money is not coming out of the IFA&#39s pocket, the tied agent&#39s pocket or the life company&#39s pocket, it is money that is not being paid to the public when their contracts mature, which is no incentive for members of the public who cannot afford to save even to begin to consider a savings plan.

Brian Pickering

Managing director,

Heather Moor &Edgecomb,

Chippenham, Wiltshire


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