17th January 2011

Ideologies and regulation do not mix.

William Joyce - nicknamed Lord Haw-Haw by the 'Daily Express' was the voice of the Reich Ministry of Public Enlightenment and Propaganda who started off his broadcasts of news to the British public from a Hamburg radio station with the introduction "Germany calling, Germany calling". Joyce's broadcasts often involved stories designed to unnerve the British public. On one occasion, Joyce asked the British public to question the Admiralty over the aircraft carrier "Ark Royal". In fact, nothing had happened to the "Ark Royal" but the seeds of doubt had been sown.

So, fast forward to 2011 and the trade media messages seem to sound like "FSA calling, FSA calling" telling their audience to be "very afraid" in their ongoing attempts to unnerve the IFA profession and the financial services industry with ever more cunning regulatory ideas and implementation methods!

The subject of the truths, the lies, the spin, the manipulation of data, the split camps within the trade press and the IFA community, the objectives, the costs, the casualties is the RDR.

The IFA community is divided, possibly as never before. It lacks a representative, powerful and unified voice, the pro RDR lobby has clearly failed to come out in submission force to the TSC with evidence to support it's view that all is fair with the RDR, that those who are not RDR ready are inferior beings and should get on with it.
The FSA RDR 'Public Enlightenment department' is being tripped up by the inconvenient truth that access to information by way of the internet and FOI requests shows that they are manipulating data to fit the argument rather than identifying the argument then backing it with data. This is dangerous and especially so for an organization that has been built on a mantra of "fit and proper" and "fair and reasonable" and should be challenged.

And for many IFAs today Paul McMillan's recent observation "Sometimes it is worth taking a stand against a blatant unfairness caused by the regulatory machine, even if the chances of success are remote" is so very relevent.

It pretty well sums up the whole regulatory 'dog's breakfast' of existence justification by ill thought out, poorly applied, expensive and unaccountable ideas, fixing what 'ain't all broke' and without consideration of cost, it's effect on the lives of those it regulates and importantly the lives of those it purports to protect- the consumer. And I am not limiting this criticism to the FSA alone, it applies to the PIA and Fimbra too yet nobody has learned anything in over 25 years.

The voices of RDR reason are crying out that something is wrong. Even MPs of differing political persuasions can see many aspects of it are wrong.

Before it is too late, we should, in transatlantic sporting parlance, take a "time out" to look at what the intentions of the RDR are, how it was and is being shaped and influenced, who has been consulted, who has not and why before it is too late.
So let's start with considering the differing views on the highly emotive issue of "Grandfathering".

The AIFA is anti grandfathering at the moment (this has not always been the case) but without too much of a membership mandate to do so. The FSA is anti grandfathering, but what is the actual evidence to support it based upon.

According to Peter Smith, head of investment policy at the FSA, the current thinking is that they will not allow financial advisers to be grandfathered because a similar allowance for mortgage brokers resulted in widespread miss-sellling. He went on to say at the NMA conference that 'Without this we would not achieve the credibility or trust the adviser sector needs to have from consumers,' said Smith.

Where is the evidence to support such claims, is Peter Smith the latest talking head from the "Ministry" to be wheeled out to make parlous claims based upon poor assumptions? A look at the ninety plus posts in Citywire and you will soon get an idea that there is not much support for citing the Mortgage Market as a reliable benchmark to decide against grandfathering.

Mark Garnier was clearly correct if this response is anything to go by in saying that he gets very little pro RDR support at our December RDR event.

For a regulator who got so much wrong in presiding over the collapse of the banks it seems a little insensitive to expect "regulatory retribution by RDR" to be visited upon IFAs for the failings of banks.

The banks are a great example of clever bankers qualifications not in reality creating greater professional standards leading to a confidence in the industry.

The Citywire posts in response to the comments from Peter Smith make interesting reading and

Jonathan Kirby sums up very well the mood of so many IFAs saying, "Much of the social history of the Western world over the past three decades has involved replacing what worked with what sounded good. In area after area - crime, education, housing, race relations - the situation has gotten worse after the bright new theories were put into operation. The amazing thing is that this history of failure and disaster has neither discouraged the social engineers nor discredited them. To quote Thomas Sowell, Is Reality Optional? Says it all really!

I do fervently believe that better qualifications for IFAs are a very good thing but do not throw the baby out with the bathwater. A true and simple test of what the consumer wants would be demonstrated by consumers simply deciding if they would rather deal with an IFA with a long list of letters and little experience on a three figure hourly rate or an IFA with a smaller list of letters and lengthy experience on a choice of remuneration model- fee or commission agreed by the client.

Hang on, I think we kind of have that model now do we not?

Is the consumer suffering as a result? Indeed Charles River carried out FSA research in January 2009 and this included the statement. "It is often argued that providers offering higher commission will 'buy' market share. We did not find evidence to support this."
As always we can draw on history to see what can happen to powerful and seemingly unaccountable organisations and individuals. At the end of the war, Joyce was arrested by British Military Police, taken to London where he was tried and found guilty of treason. He was hanged in 1946.

Good news though is available too as the TSC is on the case, raising questions about the data in the cost-benefit analysis sent by FSA chief executive Hector Sants to select committee chairman Andrew Tyrie last month. Sadly they will not get a 'veto' over who chairs the CPMA.

*Reference Wikipedia

FSA/FCA, RDR