Exactly who has made, and then won, the argument that the financial services industry should foot half the bill or more for generic advice or information?
I may have been absent when this happened but I doubt it. What I have heard is the seemingly capable Treasury minister Kitty Ussher suggest that funding should come from across the industry and not fall on particular players.
But surely this is a secondary argument to what must be the key question. Why should the industry pay and not the taxpayer?
The Treasury and the FSA may well say we do not have the budget for it. Certainly in the FSA’s case that may be true but it is no clincher for an argument – just a budget statement.
Some people may say it is an obvious extension of FSA fees. But why is it obvious?
In theory, at least financial companies get something for their fees. First, by paying for the FSA, firms of all shapes and sizes compete in a regulated market. Therefore less should go wrong and many bad apples have been ejected or rejected from the barrel. Companies like saying they are FSA-regulated after all, so there must be some benefit.
Second, by paying in part for the ombudsman service, the industry has a much less limited threat of complainants taking them to courts and once again it fosters confidence.
Third, by funding the compensation scheme, once again investors feel safer. In theory it stops people queuing around the block to get their money out.
Of course all the arguments are debatable. Many advisers, especially given Northern Rock and Lord Lipsey’s recent comments, may say they fail to see where the value is.
But at least, if regulation worked as it should, it would benefit most market participants and so they get something in return for their cheques and direct debits.
But who in the industry is helped by generic advice? Well correctly constituted it may mean that members of the public will be better informed and if it reaches its target group less in debt. That is good news. No, actually, that is great news.
But what if, for example, generic advisers were told not to concern themselves with personal accounts for the supposed greater good.
What if they were supposed to direct consumers to primary advisers for cheap product advice?
What if large sections of the industry don’t want to pay for generic advice because large sections of the industry don’t believe it is fit for purpose?
Of course that is the detail. But take a few more steps back and look at the principle of why financial services is funding this at all?
It is far too easy to say that because the industry is guilty of litany of misselling it should do something to put it back.
The FSA says that many of the businesses which committed these acts are now bust. Many of the life offices which sold duff policies are shut to new business or merged into mega closed funds now on shopping sprees for the ones that are still open.
Many building societies have demutualised or been taken over. This isn’t the same industry for these players let alone for new entrepreneurs who have started up in the last few years.
But public policy makers should also consider that costs will be passed on.
Isn’t this a tax on policyholders many of whom have surely suffered enough, fund investors – the ones smart enough not to have hundreds of thousands on deposit, on adviser clients and on customers of banks and building societies of all ages and all income groups.
This isn’t a heartless argument – a bid to get the better off – off of paying for the less well off.
Personally, I think a Government should pay for this because ultimately it helps people previously in all sorts of trouble and in the clutches of the real crooks in society. If it worked, it might stop people losing their homes or falling prey to loan sharks. What a fantastic outcome. I also think it is one small but vital step on the road to ending welfare dependency which is a blight on the least well off in society more than any other group.
So that’s fine for me. I am prepared to vote for a party that proposes that. I will pay a bit more tax for it. But that should be my choice as an individual voter.
If the Government, the FSA or any of its reviewers suggest that the industry should pay for this, then they need to make a strong case as to why. They need to show how the industry will benefit in some detail but it will need to be very convincing not simply some general suggestion that everyone will be better off.
Perhaps. But there is of course a big risk that generic advice will fail to make an impact at all. It will be an all too easily accounted for cost matched to an extremely vague benefit. I think it is a risk worth taking but only by society.
The industry and its clients and customers should pay their fair share not by paying for the scheme directly but through taxes – that is if the electorate decides it wants this to be a spending priority.
If the electorate doesn’t want to pay for the policy and chooses not to, there shouldn’t be a poll tax on financial services instead.