Nostalgia is back in vogue, with a general trend to hearken back to a golden era, when the EEC was a far-off organisation and America was great. As part of this trend, the FCA have decided to chip in with their latest wheeze to sort out the lack of advice available for the smaller investor.
A new research paper from them has concluded that smaller investors and savers are vulnerable because they cannot afford to buy advice when dealing with their financial affairs. In particular, it feels that there is a major problem for the ‘less savvy’ - as it euphemistically calls those who have no clear idea of their financial needs or understanding of the products that are available to fulfil them.
The researchers have hit upon a big idea; Banks could step in to plug the gap. They want the banks and building societies providing the products to alleviate the problem by giving advice to the customers, using staff who have ‘well-aligned’ incentives.
It could be that my memory is fading, but isn’t this where the whole process of the Retail Distribution Review started? Wasn’t it because those who were actually selling the products couldn’t be trusted to tell the customer that the product was unsuitable and that they would be better off buying something else, or even not buying anything at all?
The urge to return to the halcyon days pre the Brussels bureaucracy is, at least in this case, being driven by a rose-tinted view of how the market actually was. These same banks, whom the FCA think can be relied upon to guide the financially unaware into making key decisions , were at the forefront of the endless mis-selling scandals that rocked the industry.
They were the leading proponents of Payment Protection Insurance, which became the most complained about financial product ever, according to the Financial Ombusdman Serivce, with 1.2 million complaints in the 2012 tax year alone. The Professional Financial Claims Association (PFCA) estimated earlier this year that 75% of these policies were mis-sold and it is estimated that by the time the issue is sorted out, £45 billion will have been paid out by the banks in returned premiums and interest.
This is precisely the reason why the time-consuming and expensive strategy of the RDR was implemented – to separate the provision of advice from the providers of products. Now the FCA – should we start calling it the FSA again? – wants to return us to those days by letting the banks provide advice on their own products, specifically focused on the financially naïve?
Nostalgia has the unfortunate effect of blinding us to the realities of the past, whilst remembering the good bits. In this case, the FCA should consult their archives from when they were the FSA and realise that enormous amounts of money has been spent making sure that consumers were never again put in the precise situation which they are now trying to create. The past is a different country and in this case let’s not go there.