White vans weighed down with cheap booze from Calais have become a common sight in the UK. Now the regulatory style adopted by the FSA and its willingness to impose tougher rules – notably, the defined-payment system – than the rest of the EU has led to the suggestion that IFAs could set up on mainland Europe.
Taking advantage of a more favourable regulatory climate, they could then market their services into the UK.
Regulatory arbitrage – the spectre of the Calais-based IFA – could be a real possibility.
Towry Law International European director Paul Ellis says: “I can see the Calais-based IFA happening. Indeed. I would be very surprised if it did not happen. The UK is getting a reputation for bureaucracy.”
Laird Financial Planning senior partner Steve Laird says: “If CP121 goes through, you could see a lot of IFAs re-registering in other countries. European rules are a lot less cumbersome. The Europeans do not seem to have it in for IFAs in the same way that the UK does.”
MLP, a big German IFA company with operations in Austria, Switzerland, the Netherlands, Spain and the UK, thinks differently.
Board director with responsibility for overseas expansion Dorian Simon says that while the UK's regulatory regime is the toughest in the EU, it sees very little opportunity for operating cross-border from a single EU base.
MLP's operation in the UK is FSA regulated. Only in Austria has MLP been able to take advantage of “passporting” and that is only because of the great similarity between Germany and Austria's regulatory regimes.
The Insurance Mediation Directive, which gets its final approval soon, will allow firms to passport from a single European base. An IFA relocating to another EU country could evade FSA advice and product regulation.
However, the FSA will retain control of marketing and advertising materials.
But France would be an unlikely choice as an alternative base. Ellis says it has been a hard market to penetrate and the European Commission is taking France to court for non-compliance with financial services directives that should have been implemented in 1993.
Laird accepts there is a difference between threats that people make in anger and the cold reality of, for instance, taking exams in French. However, he has established an offshoot of his Northern Ireland-based IFA firm in the Costa Blanca.
Using his UK FSA registration, he advises expats who typically might have sold their house in the UK for £170,000 and bought a retirement home on the Spanish coast for £70,000 and are looking to invest the difference to supplement their pension.
Laird hopes to expand his business on the Iberian peninsula, ideally with Spanish regulation. But at the moment, the lack of regulation in Spain is causing problems. Some providers are reluctant to do business with local advisers until standards improve.
Both Laird and Ellis, operating at different ends of the spectrum, emphasise their own regulatory commitment, Laird through the FSA and Towry Law International through regulators in Belgium and Hong Kong.
But they point out that is not always the case in continental Europe, where advisers can set up often with a minimum of qualifications or supervision. Ellis says even if UK IFAs were to set up in Calais, one would have to question what they were scared of.
Two big German IFAs already have a foothold in the UK. AWP bought Thomson's Benefits Consultants at the end of last year to complement its businesses in Germany, Austria and Switzerland, trumpeting the move as the creation of a Pan-European IFA.
MLP hopes to have 10 branches with 50 consultants by the end of the year. The company had been the darling of the German stockmarket on the back of massive growth in its domestic market but it has suffered recently over concerns about its accounting practices.
European companies are eyeing up the lucrative UK market and UK-owned IFAs in Europe say the local markets present strong opportunities. The EU has the ambitious target of achieving a single market for financial services by 2005, a date agreed by European political leaders at the Lisbon summit in 2000.
In addition to the IMD, the other directive to affect IFAs is the investment services directive. The former allows for passporting but the ISD will set minimum standards for advice which would go some way to counteracting regulatory arbitrage.
To meet the 2005 target date, the Commission is struggling to get agreement for the menu of directives contained in the Financial Services Action Plan.
At the start of May, commissioner Fritz Bolkestein described the prize of a single market as being in reach but added that it is “a marathon and not a sprint”.
The Commission has got political agreement for Pan-European pension schemes and as they become a reality, advisers will want to advise on them and they will have to be based in a single country.
Simon says he is happy with the status quo, adhering to the local regime in different countries as long as no one pretends it is a truly single market.
But Paul Bradshaw, who has set up Skandia UK as well as businesses in Italy and Germany, believes there could be a reshaping of the industry to take advantage of the different regimes in Europe. But he adds: “The regulator will get you in the end.”