While the recent glut of consultations from the Government and FSA will be hard for the industry to respond to well, there is much to be welcomed in them
It is hard to see how good-quality responses can result from the current consultations on various subjects being made by the Government and the FSA, given their range and depth.
The LIA, like everyone else, is struggling with this, but my take on the current situation is to look at the general effect of what is being proposed. We should look at how it sits together and how we can make this relate to the long-term benefit to consumers and financial advisers.
Taking first the training and competence regime, I see in CP 157 an attempt to create a new structure that, on the face of it, looks far more demanding than anything that is currently laid down.
However, there seems to be a degree of permissiveness about CP 157. That perception has been given added weight by the recent announcement that the FSA training and competence team will in future be working within the DfEE funded Financial Services National Training Organisation as it assumes the role of a sector skills council for financial services.
Perhaps what we are working towards is a position where the FSA lays down high-level requirements, leaving the industry to achieve the overall objective of competence through whatever means it sees fit. One of these means may well be whatever it is that the sector skills council proposes. But there could equally be other routes.
We do need examinations as an entry requirement. There are a few things wrong with the FPC and equivalent examinations, but these can be fairly easily corrected. There remains a further debate about the examinations that should be required in the mortgage advice and general insurance advice areas. We would like to see equivalence across investment, mortgages and general business.
A far more important area of competence for most people sets in after they have gone through the threshold requirements and are struggling to maintain their competence. On this front, the CII, the LIA and Sofa will be announcing very soon an online maintaining competence package that will enable periodic assessments and updating across a whole range of knowledge. I hope the FSA and/or the sector skills council will put their weight behind making sure this solution is used by the industry.
And that brings me to the rules covered in a range of consultation documents such as CP159 on Appointed Representatives, CP160 on General Insurance, CP166 on Depolarisation and CP170 on Product Disclosure.
Polarisation has now been lost. There are some of us who feel it was an interesting solution to clarifying public perception of the service from different types of adviser, but it is definitely out of the window and we need to move on.
The FSA concept of scope and range as a way of informing consumers of the service they are likely to receive is probably the only realistic way in which the new array of different types of adviser can be accommodated in a status disclosure regime.
We seem to have come to the position where independent means you offer the option of fees and also advise on whole of market.
I believe you cannot connect fee charging to independence without stretching the meaning of the word. If the FSA wished to enforce fee charging for other reasons, then that is a separate matter. But I believe the definition of independent should relate to whole of market alone.
Looking across to the mortgage and general insurance regimes, I believe it is important to have a similar standard for independence. Also, the standard of advice should be suitability right across the board, not adequacy as appears to be the case for the general insurance regime.
The read across ought to work for the initial disclosure documents in all three regimes: investment, mortgages and general insurance. The FSA has moved towards this with its key facts branding.
I think initial disclosure should be streamlined as far as possible so the client only gets one document not three: a separate terms of business, an initial disclosure and a menu of charging options.
Another big challenge for the adviser is PI insurance (CP169). When PI insurance became a regulatory requirement in the early 1990s, it was intended to sit in place of higher capital adequacy requirements. Now it is becoming impossible to obtain PI insurance either at a reasonable cost or at all, there is talk of raising the capital adequacy level.
It needs to be asked whether small firms should be required to have PI cover at all. It is clearly not practicable to continue this requirement with the PI insurance market in the state that it is.
Could a de minimus waiver related to turnover (say below £500,000 per year) deal with this, accepting a few more hits on the compensation scheme where claims exceed resources?
There may in the longer term be some other arrangement that could be put in place, such as an industry pool, but this is likely to be a costly option and is very long term.
Make no mistake, if something is not done about the PI insurance problem, we will find a fairly significant number of intermediaries will cease to be able to trade.
Finally, I would just like to touch on the simplified products and the provision of advice (DP 19 and the Treasury consultation).
Stakeholder pensions have been a failure. But there is obviously a place in the market for low-cost products offering simple features and some protection against risk.
For those who are unused to investment, a simple solution would be to create a tax-free, Government incentivised, deposit account arrangement.
A feature of such a product could be convertibility into an investment or pension product on favourable terms.
Tax incentivisation or a Government contribution would encourage take-up and would probably be welcomed by those who are currently reluctant to save.
It is interesting that the FSA has mentioned the effect of low-charge products on the solvency of insurers and of course there is an immediate issue as to how distribution can work if there is not enough money to finance it.
I notice that DP 19, CP 160 and CP 166 offer a 'non-advice' route. And it is right and proper that there should be 'non-advice'. Not everyone wishes to have an adviser pry into personal circumstances.
However, 'non-advice' should have tightly drawn criteria. For example, perhaps only literature should be handed out and questions answered should be solely about procedure. Other matters should be referred to a qualified adviser.
John Ellis, head of LIA public affairs
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