The FSA's plans for the financial advice market signify a return to the 1980s rather than a move for...
The FSA's plans for the financial advice market signify a return to the 1980s rather than a move forward into the 21st century. Its proposals for a depolarised world, as laid out in CP 166, are meant to unleash free market forces to get the UK saving and investing. Instead they are likely to confuse the public and increase their distrust of an industry that is already unpopular because it is too complex and offers products linked to markets that are falling. The 1980s was a time of deregulation and while it had economic benefits, it is no coincidence it was also an era linked in the public mind with 'cowboys', hence the popularity of TV's Del Boy and Arthur Daley. In the case of financial services, the chaos generated meant the regulators brought in polarisation, so the public could understand the difference between independent and non-independent advice. Under the latest proposals, the FSA is looking to have independents and then everyone else. Everyone else will have few restrictions on their business models and can even call themselves by any name they so choose ' be it tied, multi-tied, advisers or consultants. So long as it's not misleading, it's okay in the eyes of the FSA.
The frustrating aspect of this polarisation/depolarisation debate remains the Government's dogged focus on fees. Not that the adoption of fees is necessarily a bad thing ' it just shouldn't be the be all and end all of financial services.
The FSA will only categorise as independents those that offer 'whole of market' advice and the option of remuneration by fees. At the same time, the proposals allow an adviser to offer a limited range of products but the adviser will be allowed to sell other products outside that range if they deem it appropriate. In effect multi-tied advisers could be de facto independents but would not have to offer the choice of fees.
Confusing, or a case of the free market helping the public to understand financial services, trust it and get into the savings and investment habit? Time and again the FSA has been presented with information showing consumers prefer paying commission. The counter argument has been that in order to appear as professional as solicitors and accountants, a fee structure is cleaner. Except solicitors and accountants these days also use commission-type arrangements as it is often more attractive to clients. Commission bias may exist but the addition of fees is not going to magically erase this ' especially as there is no change to commission arrangements for those advisers that tie to a number of groups.
Instead of having such a narrow focus on fees the regulator should pay more attention to appropriate training levels for advisers. It should also stop putting the whole emphasis on 'market forces'. If market forces alone are the answer then there is no need for a regulator so bring back Arthur Daley.
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