16th March 2010

Stable door!!

The FSA has at long last announced plans to vet financial products at the design stage to provide greater consumer protection. Panacea together with many, many others has advocated for a very long time that this is the approach needed, so with an election looming, Hector Sants leaving and a change of government looking possible, resulting in a new regulator for IFAs and the banks, we would ask the question "why now"?

Sants is now going through a "talk the talk" stage saying "We will now seek to proactively intervene earlier in the product chain to anticipate consumer detriment and choke it off before it occurs. We will do this through using our integrated model of risk analysis and research to identify earlier sources of conduct risk, intervening further up the value chain and scrutinising products at the design stage".

But, where is the "walk the walk"?

It is sometimes hard to believe that such a powerful, intimidating and intrusive organisation is oblivious to receiving advice from the very sector that has fallen victim to the 'benefit of hindsight" regulatory model. IFAs have for years carried the can for failed products, flawed marketing and failed regulation.

To have products "licensed" as fit for a particular purpose is a very positive, albeit long overdue step in regulation. In addition, any application should carry a declaration signed by the client confirming some specific contractual and regulatory points, such as that a fact find was undertaken, that their attitude to risk was assessed and agreed as being “x”, that the investment suited their circumstances, aims etc, that they had been given full details of the contract, they understood it fully etc.

These simple steps in the advice and execution process, coupled with a product licenced to be sold/ recommended for clearly defined, regulatory approved purposes would remove the need for hindsight regulation based upon the mindset of the day.

It would also greatly diminish the possibility of spurious or vexatious, opportunistic claims in the future as a result of a client being wise after the "Daily Mail" has told them to be wise and submit a false claim for being missold 20 years later.

IFA views on this are as always illuminating and to the point.

"This is finally a step in the right direction! We are in a situation akin to a non-airworthy airplane crashing, the travel agent being blamed and then being asked to pay the compensation. With products being tested, the providers will at long last be responsible for providing sound products and the advisor can concentrate on giving suitable advice".

"What have they been doing for the last decade then? Anyone with a bit of common sense would have realised that if you are a regulator checking that products stack up to what they say they are and the associated risks are clearly documented would be one of one of the first areas to look at "wouldn't it "?

"Good intent but 10 years and several trillion pounds too late. If the Regulators had originally had a policy of approving a product before it ever left the factory then this would have stopped most problems occurring, be they investment, mortgage or banking. It would not have stopped fraud, but that would have been a matter of criminal breach anyway. Will they do it effectively now? Not in a trillion years"!

And finally - "Why not just let the FSA design the products it thinks we should sell? They could decide how much we should all earn and what returns a client is entitled to. By the time the FSA are finished with their meddling the only difference between products and providers will be the colour of their brochures! Here is a starter for Hector:

• All funds should be trackers. The maximum TER should be 0.5%
• No commission. If funds fall in value the client is entitled to their money back plus a goodly amount of interest. Free transfers between providers must be available at all times. All literature must carry identical wording so as not to confuse the consumer. Everyone will use the same actuarial/annuity tables. All pensions will be in red brochures. All single contributions will be in Blue brochures. All protection plans will be in green brochures.
• Everybody must eat vanilla ice cream. Everybody must drink tea.
• Everybody should retire at the same age. Everybody should die on his or her actuarially predicted age.
• Everybody should get married.
• Everybody should vote labour"!

So, no horse to be seen anywhere, who left the door open??????

Panacea Comment