With great power comes great responsibility. Rowanmoor's Mark Lisle urges the FCA's Martin Wheatley to use it wisely.
On 10 April, Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), spoke on the influence behavioural economics will have upon how the FCA will improve regulation.
When I came into financial services in the early 80s, the focus was on sales. There was one universal, immutable truth espoused - people buy from people. If they like you, they trust you. If they trust you, you can sell them anything you want.
The outgoing regulator imposed upon the industry a set of standards for qualification that should ensure that only suitably knowledgeable intermediaries are let loose on the great unwashed in the interests of satisfying one of two things: need and greed.
Comment: Colonial rule
Wheatley is admirably trying to show that the need of the punter should not be sacrificed in the interests of any residual greed of the qualified salesman. However, as the entire speech revolved around direct marketing, it is a struggle to understand how the role of the intermediary can be accommodated in Wheatley’s vision for the future.
Wheatley talked of “a more pragmatic, sophisticated approach to regulation. To be a little more like Captain Kirk, perhaps a little less like Mr Spock”.
When he goes on to talk of “‘sharp’ practice in the Arthur Daley sense” the immediate picture is of the salesman as something shady and ignoble. In a culture where paper money is burned as a tribute to the spirits of ancestors, this philosophy would seem to be at odds with where Wheatley finds himself now.
Taking on the helm of this leviathan, already set on a rocky course by Sir Hector’s insouciance about the future of financial services as a people business, this early day preoccupation with buying behaviour of the populace, contrasting with the fixation of the outgoing supremo on the perceived malignance of the selling practices of our industry, seems to contradict what has gone before.
If I may respectfully suggest a cause worthy of Wheatley’s position, leave aside concerns of caveat emptor and behavioural economics, and influence the Treasury to create incentives for improving pension savings.
Rather than the stick that is auto-enrolment, suggest creating some carrots as, at the moment, there is very little to encourage the investor to think long term. With great power comes great responsibility.
With contributions capped at a real all-time low, and without the previous incentives in the form of increasing contribution limits that were age-related to foster a never-too-late window for the laggards, it is no wonder pensions have become devalued as an investment planning tool.
Funds are quite often exposed to a more adventurous risk profile as a reflection of this perceived worth than one would normally anticipate. This is more a reflection of a lack of value than a genuine appetite for risk and this is a major strategic consumer protection problem.
Success in such an initiative would be a genuine vote-winner among the sales fraternity, as pensions are still the least likely product to be bought, not sold.
Good luck Martin.
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