On the Money

We don’t need more regulation (apologies to Pink Floyd)

Alan SteelDid you know it’s 30 years since the Financial Services Act was passed in the UK?  Before then financial products as well as advisors and salespersons weren’t regulated in any way.

That meant  it was like the Wild West for savers and investors. Cowboys and conmen roamed unchecked telling porkies, chasing commissions and ripping off innocents. Sure there were some professional and honourable advisors around but we were in the minority.

But then an investment firm in London, Norton Warburg crossed the line.  It wasn’t the fact they ripped off Pink Floyd for a reported £2 million that upset the Government of the day, but stitching up widows of Bank of England employees was the last straw. Dark Side of the Moon indeed.

And thus it came to pass a certain Professor Jim Gower was asked to consider what best to do about protecting savers and investors . His original proposals included recommendations that the manufacture of financial products be separated from their distribution.

In other words if you were a bank, building society, or insurance company you wouldn’t be able to sell your own products. You could make them but, on the assumption they were good enough, only regulated independents could sell them.  Imagine the furore that caused.

Unsurprisingly, his proposal never saw the light of day when the 1986 Act came into force. Pity. Just think of the many billions of pounds in compensation that wouldn’t have needed to be paid out to wronged customers over the years since had Gower’s key recommendation not fallen foul of UK financial institutions’ powerful lobbies.

So ,30 years later, and with almost constant so called “improvements” from successive governments and consumer groups, where is investor protection today?  How successful has it been ?  And how about the financial know how of typical investors after all this time, especially of those heading towards what looks for many a much longer time in retirement with more bewildering choices than previous generations?

Whichever way you look at it you’d have to conclude the whole thing has been an enormously expensive failure.

Think of the late 1980s pension mis-selling scandal, the Equitable Life collapse in 2000, endowment mis-selling, the spilt cap investment trust (Safe as a Volvo) disaster, with profit bonds, SCARPS, PPI  etc, not forgetting  scams prevalent today in the wake of 2015’s pensions freedom.

The last one was thought up on the back of a fag packet by a Government only too desperate to raise immediate tax revenues. What’s the bet tht an even bigger pension scandal is looming ?

Now we hear that forces inside the financial regulator, the FCA, still believe the widespread ignorance of pension investors and savers is down to us –  the advisors – not educating our clients sufficiently thanks also to our use of confusing jargon and complexity. Can you believe that?

When we IFSa send recommendations to new clients and existing clients we are required by law to send a “Reasons Why” letter which can be up to 25 pages long and a 40 page “Guide to your Retirement Options” document if it relates to pensions. In addition, if you are near retirement, you have to receive an “Annuity Guide”.

Add 10 pages of “Key Features”,  six pages of “Illustrations”,  and two pages of “Key Investor Information Documents” (leave those KIIDS alone ), another two pages of “Attitude to Risk” document.

All this is after face-to-face meetings and completing full Fact Finds and Money Laundering forms. Clients end up Uncomfortably Numb, if you ask me.

All  documents are written in a language and format laid down by regulators. Hardly a year goes by without further changes of procedure. Meanwhile, journalists can write pessimistically whatever they want about products or advice, unhindered because they’re exempt.

So where are we thirty years later?  The majority of folks reaching retirement have less than £50,000 of savings despite living over the richest 60 odd years in history. Over £1.3 trillion lies in UK deposits earning almost zero. Less than that when you factor in inflation and tax.  Hundreds have been conned out of their life savings by scammers posing as IFAs and making the most out of investor ignorance.  Real risk is widely misunderstood by most investors and regulators.

And as the need increases for experienced independent advice, ineffective regulation has forced thousands out the industry. To put the tin hat on it, research this week finds the majority of serious savers aren’t prepared to pay decent money for quality advice because…..”they don’t need no education.”

You could not make this up.

Alan Steel is chairman of Alan Steel Asset Management

Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.


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