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When will FSA answer calls for a misselling definition?

One of the key recommendations made in the Sandler report in July was for the FSA to offer up a definition of what constitutes misselling. Nearly four months on and IFAs are no closer to hearing a response from the regulator on this matter.

Since the review team made its report and subsequently disbanded, Ron Sandler has rep-eated this call enough times for many in the industry to conclude that it is a recommendation he takes very seriously.

Earlier this month at the Treasury-hosted seminar about his report, Sandler challenged the FSA to produce some regulatory clarification, specifically in the area of misselling.

FSA managing director John Tiner was present at the event but chose not to respond to Sandler in his remarks and no one from the FSA has yet given an indication as to how it plans to come back on what is becoming an increasingly important issue.

Aifa chairman Lord David Hunt has jumped on the bandwagon and is demanding action from the regulator. He is likely to find much support from everyone from the ABI to providers to IFAs who want a clear definition of what is misselling.

ABI head of life and pensions Francis McGee says: “It is a constraint on future action and no institution would voluntarily constrain its future actions. Creating a definition would result in a significant saving of time and resources on the part of the industry.”

Scottish Life head of communications Alasdair Buch-anan says: “It would be a highly desirable move because there is uncertainty about the degree of retrospection that may be applied by the FSA. The fact that Sandler has said it should be done clearly raises the ante and increases pressure on the FSA. I rather expect the FSA will be pushed in the direction of offering up a definition.”

There are several convincing arguments in favour of the creation of a definition.

Primary among them is a desire to remove the ability of the regulator to define in hindsight what is misselling. It is a very real fear among IFAs that they could be held liable in the future for what appears to be valid advice in the present.

Clerical Medical pensions strategy manager Nigel Stammers says: “Sandler correctly identified that IFAs are worried about giving advice and then 20 years down the road with the benefit of hindsight being told they said something they should not have.

“If an IFA gives what he honestly believes at the time is genuine advice, then they should not be penalised down the road. The FSA is reluctant to nail its colours to the mast. It cuts out future options and means they give up the right to retrospection.”

Some believe the FSA puts too much emphasis on product focus instead of the interaction between products. They say the real risk of misselling comes as a result of moving between products rather than the products themselves and if there is a definition in place, the risk is reduced.

Proponents of this argument point to pension misselling as an episode which was caused not by the actual sales of personal pensions themselves but by policyholders being advised to move from occupational to personal schemes. This claim comes despite the fact that the FSA prides itself on regulating the advice process and defends this approach whenever it is criticised.

Syndaxi Financial Planning principle Robert Reid says: “The public wants protection from bad advice but we have a regulatory strategy which overly concentrates on the product. If you focus just on products, you do not get the interaction products right. One of the biggest risks is when people move between products.”

Others suggest that, with the move away from boxticking regulation towards a more streamlined and risk-based approach which the FSA appears keen to pursue, having very clear guidance on what is and is not allowed is essential.

Consumers&#39 Association senior policy adviser Mick McAteer says: “It is important that we at least get more guidance as to what constitutes misselling, if not a clear definition.”

There is little doubt in IFAs&#39 minds that looking forward in the post-Sandler world where there may very well be advisers with fewer qualifications selling products to consumers with little financial savvy, there is a definite need for misselling to be clearly defined.

Many believe this is why Sandler is keen to pursue the matter because he knows his proposed regime will not function effectively without it.

One of the most timely cases being made involves the issue of professional indemnity insurance and the fact that many IFAs are finding it difficult if not impossible to find cover. The spate of misselling incidents has much to do with the fact that there are so few PI insurers still offering cover to IFAs and many believe a firm definition would reassure them.

IFA Fidelius director Mark Osland says: “I think it is essential. One of the biggest threats we as an industry are facing at the moment is a lack of PI cover and one of the key reasons for this is the concerns that PI insurers have over the retrospective culpability.”

One IFA has created his own definition of misselling. Kangley Financial Planning managing director Geoff Kangley has devised a system which runs through possible scenarios where misselling might happen and spells out the action to take.

He combines this with a checklist that advisers would have to take a potential client through asking questions about personal circumstances. With the client&#39s signature at the bottom of the checklist, Kangley believes IFAs would be protected against future claims of misselling.

It is inevitable that the FSA will respond to Sandler&#39s call. It cannot hope that no one notices.

In any event, that may not be its intention. It may be that while recognising the need for a definition, the regulator is also aware that it will be an expensive and timeconsuming process and one that is not that high on its list of priorities.

The industry is keen to hear the regulator&#39s thoughts on the subject and the longer it delays a response to Sandler, the louder the cries for a clear definition are likely to get.

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