Regulation, will we ever get it right?

I had the great fortune to sell my IFA practice 10 years ago, a driver for taking the plunge was that having worked under the ‘control’ of 4 different regulatory regimes- NASDIM, FIMBRA, PIA and FSA, the prospect of never seeing a balance of common sense and fairness painted a very bleak future.

The jury may still be out in that regard, but I think we are at the stage where the Judge may be directing the Jury that a majority decision would suffice.

I am not normally driven to negativity, cynisim maybe, and while I do see an absolute need to have regulation of financial services, it seems to me that wherever there is regulation, chaos and extreme cost is the outcome with blame being laid at the door of the weakest. 

Some key facts to digest:

• Regulation is poorly thought out in just about every industry
• It is reactionary rather than pro-active
• It is not always retrospective, although in financial services it seems to be an exception
• Nobody ever listens to the voice of experience
• Nobody ever learns from past failings
• Nobody in regulation admits failure
• Nobody in regulation takes the blame
• Everyone in regulation benefits from ‘learnings’ and earnings
• Regulatory failure is rewarded not punished
• Regulation is an industry, it is hermaphroditic, capable of self procreation and without something to bash it would have no purpose. As Keith Richards (Rolling Stone not PFS) once said “In the business of crime there’s two people involved, and that’s the criminal and the cops. It’s in both their interests to keep crime a business, otherwise they’re both out of a job.”

 Regulation should not be pursued at any cost and in such a way, applied like a tattoo only to be regretted when the effect of the alcoholic induced stupor that fuelled its creation has gone away. The NHS is an example of regulation on ‘acid’.

Has the consumer benefited? Many may say no. Access to financial advice for the masses has been exterminated. Even if it was freely available, there is insufficient capacity to service any more than around 10% of the population based on the recent Heath Report and the FAMR will not correct that imbalance as was intended.

In 2009 the great and the good expressed concerns about the impact of RDR and how it will disenfranchise consumers, here but just a few to prove my “Nobody ever listens to the voice of experience” comment

• Otto Thoresen - CEO ABI, then of Aegon: "The RDR is only helping wealthy customers"
• AXA April 2009: "We will lobby the FSA to make sure the RDR does not mean less are able to access advice"
• Institute of Financial Services: "RDR will impair financial advice before improving it"
• Alasdair Buchanan Scottish Life November 2009: "Sales advice is a real cop out and extremely confusing to investors"
• Stephen Gay - Aviva June 2009: "The regulator has failed to consider the danger of adviser charging limiting access to advice for those on lower incomes"
• Lord Lipsey: "Consumers in the middle (not high net worth or money guidance fodder) to be sold products by banks under the contradiction that is sales advice"
• Walter Merricks former Chief Ombudsman: "I think it would be unwise to count on the assumption that complaints from the retail investment world are suddenly going to go down as a result (of the RDR)"
• Deutsch Bank report August 2009: "There has been industry talk of 30% or even 50% of IFAs exiting the industry post 2012, which is not impossible"
• Paul Selly HBOS: "Bancassurers set to benefit"
• Richard Howells Director Zurich Life June 2009: "The big question mark is still around what benefit it will have for the ultimate consumer. I am still not convinced that all of these changes, when you sit down with a consumer and explain them, actually give rise to a consumer benefit that I can really hang my hat on."
• Martin Lewis Money Saving Expert June 2009: "There's a worrying possibility that the FSA is about to kill off independent financial advice in the UK for all but the wealthy. I do hope I'm wrong. I'm not convinced most people will want to pay for advice. The commission route has the advantage that you don't pay a fee each and every time you want information; you can go without the worry of laying out cash. What I find most galling though is that bank-based advisers - those primarily responsible for PPI miss-selling, endowment miss-selling, investment miss-selling and generally poor advice all round are still to be allowed to be remunerated based on the number of sales."
• Janet Walford OBE, Editor Money Management Sept 2009: "I am not paranoid enough to believe that the FSA has a hidden agenda to do away with small IFAs, but the law of unintended consequences may well mean that this will be the result. This is especially the case when set alongside the myriad of other proposals that are costing some ￡430 million to set up, with ongoing fees of ￡40 million pa thereafter, a mind boggling amount of cash.
• Peter Hamilton barrister, Source: Money Management Oct 2009, Scrapping the FSA by Marie Jennings MBE: "The Financial Services and Markets Act does not permit the FSA to cancel an authorisation simply because the FSA has changed its views on what the appropriate qualifications should be.... It is one thing to impose new rules for new entrants to the IFA profession, it is quite another thing to disqualify someone who is already qualified."
• David Hazelton of Tax Incentivised Savings Association (TISA) 30/10/09: The RDR could be detrimental to consumers both in terms of higher product charges and an increase in the cost of advice, warns the Tax Incentivised Savings Association (TISA). Implementation costs for the RDR are being "seriously underestimated" and product charges will consequently have to be raised.
• Robert Kerr, head of retail distribution development at Scottish Widows says: The RDR could have the unintended consequence of "disenfranchising" the majority of consumers from financial advice. "Our key concern is the RDR proposals will act to drive advice upmarket, with financial advice becoming the preserve of the wealthy leaving mass-market consumers un-served,"
• Nigel Waterson MP when Shadow pensions minister: "While no-one can object to raising the standards of training and competence, should an emphasis on exams take precedence over on-the-job training and experience?

Fines are at record highs for the same bad behaviour from the same suspects, regulatory costs are at an all time high, huge FSCS levies continue to hit ‘small businesses’ when least expected, politicians have no control of those they leglislate to regulate, those employed in financial services regulation have increased, those employed in the financial services sector they regulate have decreased. 

The problem with regulation in 2016 is that you cannot regulate for lack of common sense, yet that is what we keep trying to do. Caveat emptor has gone. 

We have lost the use of that in-built gene of common sense when looking at constructing and applying regulation.. Its loss went along with map reading skills, crossing the road after looking both ways, not talking to strangers, proficient cycling, spelling ability, simple mental arithmetic skills and very many more.  

The world has truly gone mad, or at least it has in UKplc’s regulation section.

We have a society that is now readily and speedily offended on somebody else part for just about everything that simply should not matter as much as it does.

We have borders that are not fit for purpose, we have an NHS in meltdown because the service is now aspiration and expectation based, rather than focusing on the basics of it’s original 1948 founding principles (comprehensiveness, within available resources) and a country controlled not by UK based elected politicians but by unelected civil servants, quangos, eurocrats and regulators.

To top that we now have 'Brexit'.

To borrow that famous Bob Monkhouse quote “ When I said that the proposed RDR regulation would not work, everybody laughed. Well they’re not laughing now.