More regulation is not the answer
I went to see my consultant prior to an operation on my shoulder. He gave me two options and then asked me which one I wanted to take. A bit astounded, I told him that I was paying him to make the best decision, he had 7 years of medical school and over 20 years’ experience to help him, and therefore there was no point in me trying to decide based on information gleaned from 15 minutes on Google.
He made the decision, I had the treatment, and it all turned out fine, but it did make me wonder where this obsession with giving everyone a say over his or her own treatment came from. Is it really such a good idea, given that one is generally consulting an expert for a reason, namely one’s own ignorance of the particular subject?
This obsession with giving people control in areas they don’t understand is also present in the financial services world. No amount of ‘guidance’ or educational websites can make the majority of people expert in an area where they had little or no knowledge before.
Is this really the right approach? Should we not be handing over control to those who have the expertise and experience to understand the situation and make the best decisions? Of course, occasionally the wrong decision will be made but that is in all probability far less likely than if the individual had taken the decision his or her self.
The problem with this, of course, is the danger that some would make the wrong decision deliberately in a way that would benefit them. However, I remain unconvinced that we should try to legislate everyone into behaving. Instead we need to tell people to do it right, and then respond with a punishment if they misbehave. As such, there is a need to put proper emphasis on the fiduciary duty financial advisers owe to their clients, and then remove most of the red-tape, including the abolition of commission, which is making advice too expensive for those who need it most.
A fiduciary responsibility means that the IFA or trustee is under an obligation to act in what is the best way for the client. This would ensure that anyone could challenge his or her decisions at a later date and the practitioner would be under an obligation to be able to prove that the decision was indeed the correct one. Of course, this would mean that the regulator would have to focus on policing the industry rather than coming up with new regulations all the time. This may well be a more achievable goal for them.
Light touch regulation is out of favour at the moment but that doesn’t mean principle based regulation should be equally maligned. The key thing about regulation is that it should achieve its aim of protecting the consumer, and over-regulation doesn’t do that. Instead we end up with regulators who are constantly monitoring whether the regulations are being kept rather than whether the consumer is being protected, which is not the same thing.
This week the Treasury and the FCA launched a strategic level review of the role of advice in the industry together. Let’s hope they take advantage of this major review by looking again at the purpose of regulation; making it clear what the duties of advisers are to their clients and how advisers can be policed in an independent way.
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