One has to feel sorry for Martin Wheatley, CEO of the Financial Conduct Authority, as he struggles to find a proper path out of the morass into which the regulator was led under the previous incumbent. Sadly, a change of one letter in the name from the FSA to the FCA is not enough to chart a way forward, the problems are deeper than anything that could be corrected by a rebranding exercise.
The many thousands of people due to retire this year will find it difficult to get advice at the very moment they need it most, due to the chaos caused by the implementation of the Retail Distribution Review. At last week’s session of the Treasury Select Committee, Mr Wheatley admitted the reduction in adviser numbers had caused an ‘advice gap’ that had disproportionately hit lower-value consumers and stated it was a cause for concern.
Then, showing that he obviously hadn’t wasted any time reading the minutes of the FSA’s previous meetings on the subject, he placed his faith in the innovation fairies – the ones who are going to design an automated advice system that is cheap, but yet so sophisticated that it can give correct advice to any of the unwashed masses that are reduced to using it.
This attitude can be described as at best optimistic, at worst playing for time so when the chickens finally come home to roost, he will be safely ensconced in a new job, far away from the mess that will be left for someone to clean up. We have been through this issue so many times and it is clear that any system will leave its designers and promoters open to the claim of giving incorrect advice. There is no set of criteria that will hold for each individual and therefore advice on purchase is bound to run the risk of being flawed. For example, on difficult areas such as attitude to risk, it is often the non-verbal signals that lead to an IFA probing deeper to find underlying reasons why the client does not mean what they appear to be saying.
Mr Wheatley’s answers to the committee show a lack of new thinking and that same determination to pursue a particular course, irrespective of the clamour of opposition that is being voiced by professionals within the industry, which was the hallmark of his predecessor. Indeed, the whole RDR project was primarily attacked from the start because it would lead to an advice gap – the same gap that now appears to be taking the regulators by surprise.
While the FCA’s solution to the danger of mis-selling seems perfect on paper, these approaches fail to survive contact with the real world. If the regulator would listen more to the experience of the IFA community, we might be spared such counterproductive and costly initiatives that actually work against the outcome the regulator is trying to achieve. Of course, this would require the regulator to actually trust the opinions and motivations of the IFA community. I won’t be holding my breath for a mind-shift on that scale.
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