Trying to change your market for the worse is easy. You merely look at best practice and set out to make more money faster than that allows. When others see you driving fast cars they follow and the job is done. Making your market better is far harder and so is generally left to the regulator.
The trouble is that by the time the FSA tackles abuse, it tends to have reached serious scale. I was one of many whose early complaints about payment protection insurance were ignored, as were others’ prescient concerns about Keydata, Arch cru and now Arck. I suspect the practical problem is that the regulators’ span of control is impossibly wide for such a technical job; as demonstrated by its talk of “the industry”, as if spread-betters had anything at all in common with financial planners. In truth, it regulates several industries and professions. Perhaps the forthcoming split will see the Financial Conduct Authority become more acute and thus able to nip issues in the bud and stop the topsy-like growth of the Financial Services Compensation Scheme, which currently seems capable of consuming all of us who have to fund it while our numbers shrink.
In investment it seems the current rogue vogue is for wholesaling funds that do not actually invest the way they claim to. But in this column’s favourite market, protection, the products are not the issue, rather it is the way they are sold. The obvious current example is the turning of PPI from occasionally useful to totally toxic by its sellers’ greed.
So how does a market improve sellers’ behaviour? If it leaves it to the regulator, then rules are heaped on those who obey them, while a significant minority simply ignore them and make fast money. That is how you end up with a cataclysm like the RDR. It is far better to self- regulate while you have the chance. In protection that is relatively easy as there are only 10 or so insurers active in the market and so no distributor can function without their permission. All that is needed is for insurers to mind how their products are sold – and all in fact claim to actively do so.
However, through talking to thousands of consumers a week we know that while the protection market is generally an orderly place, there are some advisers and non-advisers whose selling practices are awful. They are not numerous or large, but if left unchecked, bad practice grows much faster than good and soon the regulator arrives to fix things. And its fix can be clumsy and very destructive to a market. We should do everything to forestall its interest.
That is why we have proposed a self-regulatory protection code of conduct, while the issue is small and easily controlled and before the RDR perhaps increases the numbers of people selling or advising on protection. It seeks only to proscribe the very worst practice in a way which covers all sellers, not just advisers, as more than a third of all protection policies are now sold without advice.
If you are a responsible adviser or non-advising distributor I hope you will support our initiative. Once it has sufficient distribution support we can ask the insurers to ensure their agents do not indulge in worst practice and thus allow the FSA to keep the Icob rules “light touch”.
Tom Baigrie is chief executive of Lifesearch