Regulation and Politics
The FCA could run a competition to design the most effective disclosure documents
Wednesday, April 10th, 2013

Some of the signs are good at the Financial Conduct Authority. It is trying to sort out its intelligence gathering. It may now be trying to sort out disclosure and the huge amount of paper that advisers have to give consumers which they don’t read. There’s a long way to go, but this could get very interesting. The FCA should, of course, also ask advisers what they think, because good advisers probably know instinctively what is getting through to clients and what is not. In fact, though academic papers are  a very significant step – it’s about time some intellectual rigour was brought back into regulation – we wonder if the FCA might not run a competition for the best designed, most effective disclosure documents. They could test them on consumers to find out which ones work for different product areas and types of advice. It couldn’t do any harm and it would keep the lawyers out of the process which probably wouldn’t hurt either.
Could a journalist ever have cracked what was going on at HBOS?
Friday, April 5th, 2013

So this HBoS thing. What kind of journalist could really have found out what was going on? None I think. Unless an Irishman, an Australian, an Englishwoman, an analyst (well maybe a US-based one who understood mortgage securities (scrub that actually), a former, reformed trader who had found God perhaps, a forensic accountant (any gender), a compliance expert (and a lawyer to deal with the privacy and libel stuff) got together and surveyed the whole bank to find out what was going on. It’s just not practical even with Google+ to hand out in and discuss matters. So it’s back to isolated journalists or news desks.

For example, UK journalists could question the lending policies or the market share. I did. No really. Many journalists did. Well we asked, but did we arm ourselves with the correct financial information beyond the blunt “What about the fact you have almost a third of the mortgage market?” Tricky you see, when institutions are so vast.

“Well, HBOS would  say, we are managing that market share down a little bit, prudently of course. We are now building our share of investments and savings to our natural market share.” Blah. Blah. Etc.

So could we find experts to help – experts who understood mortgage funding and the quality of mortgage backed securities. You see we were told about that too but it was tricky to write. Some very small sub prime lenders were protesting the strength of their mortgage books days before they crashed, sometimes even after tranche one had hit the rocks, they were still protesting about how tranche two was different. Indeed, some journalists warned about overheating in the institutional market. But really was it anyone’s main business? Did any paper run stories on the front page? Actually I do recall Abbey getting a front page pasting for its lending policies but not HBOS though I could stand corrected on that. And imagine if any title had written even one tenth of what said by the Banking Standards Commission in its report today in a newspaper or magazine. Guess what. They would have published and been damned. Utterly damned. (Something Lord Leveson possibly missed while he was listening to Hugh Grant. Oh well.)

So journalism probably can’t catch this sort of thing. Not even outstanding journalists like Gillian Tett or Robert Peston. So it’s up to regulators or the market. Oh dear.
Double decimation so far – was the RDR worth it and isn’t that the wrong question anyway?
Thursday, March 28th, 2013

So now we know the magnitude of the drop. We have seen a huge fall off in adviser numbers, by a fifth. It’s more for bank advisers and that was before Santander closed its advice sales force. The FSA told us the numbers – almost in its dying act – reported here in Money Marketing. Certainly some advisers will have brought forward their retirement so perhaps some of that number represents an acceleration rather than an absolutely forced exit.

But whatever those details and the motives, the fall is huge. Unfortunately, the Money Debate suspects this is before the charging reform really bites in terms of the cash flow strain. So was it worth it is the wrong question.

Here’s the right one. If we accept that many aspects of the RDR are good for the industry and for clients, could it have been delivered in a way that didn’t drive 20 per cent or more from the financial advice sector? We’ve done a little poll around the Money Debate offices and we think yes.

Here’s our suggestion. First there shouldn’t have been a qualifications cliff face. Every adviser who wanted to continue first and foremost should have faced a resit or reassessment. Call it gap-fill plus. Then the  qualifications could have increased by a paper or couple of credits a year, possibly allowing advisers to take the most relevant to their advice business first. A failure to engage with the process should then and only then have led to people no longer advising.

Second. Cap commission at least in the interim. Sort it with the OFT. (Get the Chancellor to call them. He is within his rights do so on consumer protection grounds. That’s the view of our constitutional expert at Money Debate towers.) Regulators could have monitored the market to see what the cap was doing. Note that under a commission-capped scenario, consultancy charges wouldn’t be getting worryingly high and possibly facing a ban. Intriguingly commission in this scenario is more controllable.

If the commission system had then continued to be abused, then regulators could have brought in adviser charging/customer agreed remuneration.

See easy. Maybe not so easy but maybe eaiser. Some things had to change. There was bias. There were risky gaps in some advisers’ knowledge. Advisers who have filled those gaps in the last two years have told me so.

But we are well on the way to losing a quarter of advisers from the market. Just when we need advisers, especially for middle Britain, while upper middle Britain is getting all the advice. Double decimation so far is not good news. There had to be an intervention. But maybe not the way it happened. And it’s too late now.