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The truth is out there

Congratulations on your appointment and your first wise decision to put back the next deadline on the retail distribution review so you can have a few weeks to get to grips with a subject that your predecessors have failed to work out these past 27 regulated years. Actually, that is a bit unfair. They did once get to grips with it with a concept called polarisation but they were lobbied into scrapping that with a move called depolarisation, designed to improve bancassurer sales levels. It failed and that is where we are now and it is what Callum McCarthy called “broken”.

To help us get on with doing good things such as selling pensions and life insurance in far greater numbers, we need you to make some correct decisions swiftly and also to tell us where you have no intention of changing anything in the next, say, five years.

As you look at the broken present with fresh eyes, remember that the best solutions are simple and arise from basic truths, not complex constructs. One such is clearly available to you and happily it is not controversial, it is the RDR interim report.

If you are impressed by its clarity and admire the sensible caution inherent in its incompleteness, you should perhaps read through its predecessor for a study in regulatory confusion and hubris. I call them RDR2 and RDR1 respectively because they could not be more different. While there is work to do to turn RDR2 into a workable reality, its foundations are sound. I would put the key one like this:1: For consumers to buy more, they must trust more and to trust more, they need to know exactly who they are dealing with.2: To achieve this in affairs as complex as finan- cial services, consumers must know without doubt whether the person who is advising them is acting as their agent or as an agent of an institution selling them something.3: Because both models are needed, the industry needs to divide into a smaller, clearly differentiated professional class and a far bigger commercial class.4: Standards of care must be high in both sectors but, above all, the commercial class must not be allowed to purport independence, as they do now.

That is repolarisation and the rest is detail that falls more easily into place once this simple consumer protection is properly policed. Many rules can be cut and much regulation simplified by this simple border between what is good and widely available and what is best. If you get your colleagues in enforcement to keep that border clear to consumers by punishing those whose lies cross it, then the professional class will set standards and will grow but agents of the client are inherently less successful than those who can sell, albeit ethically. The commercial sector, freed from having to pretend to advise, can get on and develop product and sell it profitably.

The combination will close the gaps that society badly needs us to close. It will do this because the consumer will be clear and can thus learn to trust and thus start to buy. You could even speed that up by diverting funds from the FSA consumer education website to a public education campaign.

To achieve this simplicity, you will need to watch out for the complexifiers. They will encourage rules seemingly designed to be watertight but in truth aimed at leaving the consumer able to be fooled as they are today. If you think my fears are exaggerated, check the Competition Commission’s report on PPI.

Tom Baigrie is MD of Baigrie Davies Lifesearch


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