The FCA. Do we still need it?

I’m sure you are all wondering whether the heat has gone to my head with that headline. I can assure you it hasn’t! The costs of the FCA are burdensome and escalating and there’s still widespread financial nonsense taking place.

I’ve therefore given some thought to regulations, the cost of advice and the desire to improve professional standards and the client experience. This has led me to question the need for us to even have the FCA.

We have many different bodies and organizations involved in the process of providing financial advice.

We currently have professional bodies such as the CII and CISI, plus we have the FSCS, FOS and then of course the FCA. All of these contribute in some way to the overall standard of advice and the client outcome. Most of the discussion around amending regulations focuses on the FSCS, but I personally feel it’s the FCA that needs to be significantly altered.

Professional Bodies

The Professional bodies ensure anyone wishing to be an adviser needs to firstly undergo sufficient study and then continue to maintain and advance that knowledge through CPD. So the professional bodies such as the CII provide for knowledge and professional standards, along with a code of conduct, thus making sure that a certain level of advisory standards are maintained.

Financial Ombudsman Service

We then have the Financial Ombudsman Service, who deals with dissatisfied clients and orders redress if they decide that the adviser has essentially provided a dis-service to their client, by mis-selling to them.

In many cases, the term mis-selling appears to be a softer description for fraud – If you take money from people by misrepresenting the facts it’s fraud, plain and simple. Sure I expect courts would have a hard time proving fraud and clients wouldn’t always wish to go this route, but I think many advisers financial promoters are getting off lightly by the very existence of FOS.

On the other hand, I also understand that advisers are sometimes victim to spurious claims and many members of the public are using FOS for every possible small grievance and a backstop for any losses suffered.

FOS isn’t perfect but it provides an essential backstop in the event of poor advice. This is an important safety net for consumer protection.

Financial Services Compensation Scheme

We also have the FSCS who provide compensation to investors in the result of losses due to the provider or advisory firm becoming insolvent.

They provide an important means of returning money to people who have lost out from bankrupt providers. I understand the advice community’s frustration with how FSCS is funded, especially products that should never see the light of day and the very valid issue of good and honourable advisers bailing out the bad and unscrupulous ones.

You really need to put yourself in the client’s shoes though.

They have entrusted their money to an organisation, solely on the basis of a person persuading them to do so. A person who is promoting themselves to the client as someone who is trustworthy and well versed in financial matters leading the client to make the decision to invest. Is it really the client’s fault if something goes wrong and should they be the one who loses out? Or should it be the profession and industry responsible for the mess?

 

Financial Conduct Authority

Finally we have the FCA. I expect the mere mention of the name causes some discontent at some level up and down the country. I’ve never met anybody who has said the FCA do a wonderful job and they’re thankful to have them. Please do tell me if you have some positive stories. The financial media is so often publishing negative articles about them that I may well be the victim of negative FCA propaganda.

I expect though that my discontent with the FCA is well placed, with one very notable exception.

As a group, we should be embarrassed that the FCA felt the justified need to impose the RDR on us. Surely the advisory community should have been operating to similar standards from the very first day they were advertising themselves as financial advisers?

Presently, the FCA dictate all of the procedures of how advice is delivered. But is there a better option?

A possible alternative

I’m personally uncomfortable with regulations by diktat. The idea that rules and regulations are imposed rather than freely debated makes me uncomfortable.

I feel the remit for setting the standards for financial advise should be with the professional bodies, with members freely discussing and exchanging ideas on best practice. After all, surely those who are involved in the client advice process day in and day out will have far better ideas than those that do not.

Essentially, I believe developing advisory standards should be democratic, not a dictatorship.

By removing the FCA from the equation, all advisory fees could also be reduced, resulting in a positive outcome for consumers as this cost saving could be passed on to them.

It’s my belief that our progress and evolution as a profession rests in the free exchanging of ideas, views and innovations, not in reacting to whichever guideline is prescribed by the FCA (and then how that is interpreted by whichever compliance consultant or employee you happen to engage with).

By removing the reactionary adjustments we frequently make to new FCA ideas and guidelines, we could all proactively become involved in shaping the future of our profession.

Presently, this is suppressed by the very existence of the FCA. Why would you invest considerable time and effort into devising how you should provide and explain your advice, when that work could be made redundant by the next FCA publication?

The costs of the FCA are also considerable.

Some Challenges

I do concede that there still remains far too many unscrupulous financial promoters using the title of advisers, financial planners or wealth managers etc., and removing the FCA could potentially leave the door open for more of this type of activity. However, my view is that all of this financial nonsense is going on under the watch of the FCA anyway, perhaps removing the FCA will force the public to be a lot more careful about who they trust with their life savings.

Maybe removing the FCA entirely is going too far. Perhaps we should think of ways to restructure and reduce it’s remit and therefore it’s budget, but improving it’s effectiveness at weeding out poor practice.

Perhaps the FCA needs a little less bureaucratic bark and a little more bite.

Despite the ever increasing FCA budget, I expect all of you know of at least one example of something going on in financial services that shouldn’t be.

Maybe it’s not the bodies and structures that need to change. I suppose the poor practices that are still happening is really a reflection of the people involved. It seems clear to me there are too many lacking honour, honesty, wisdom, courage, responsibility and determination to do the right thing, and I expect no amount of legislation is going to change that.

I remain convinced that the FCA is far too bureaucratic, costly and isn’t protecting the public well enough – perhaps it’s simply an impossible remit. I feel the solution rests in all of us collectively sharing ideas and pushing for better standards. We can’t just leave it to a regulatory dictatorship and expect a positive outcome.

Please let me know your thoughts in the comment section below. It would be great to hear from you directly. Simply email mark@nomadparaplanner.com and i’ll get back to you shortly.

Mark Underdown

Nomad Paraplanner

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