Got my mojo working but it just won’t work on you

So, how did financial services lose its mojo – and how it can get it back ?

PWC have charted the decline of the relationship between the UK financial services sector and its customers, and consider what companies might do to rebuild trust with today’s apathetic customer.

Financial services companies expect their customers to make a leap of faith: they want those customers to trust them with their money.

One legacy of the financial crisis, however is a comprehensive loss of this trust.

Worse, PWc’s research suggests that customers now feel they have nowhere to go. They feel frustrated and apathetic towards financial services companies because they think they’re all the same.

A very interesting read for all advisers, what can advisers take from this research to restore that trust?

Hello darkness my old friend. The sound of Davis enquiry silence

Earlier this year, seven months ago in fact, the FCA independent directors appointed Clifford Chance litigator Simon Davis to conduct an inquiry into the announcement via The Telegraph, by Clive Adamson, of an investigation into the insurance industry on the 27th and 28th March.

This proved to be quite incendiary as TSC Chairman Andrew Tyrie noted “the FCA may have made an ‘extraordinary blunder’ in allowing market sensitive information about its work to reach the public domain ahead of schedule, thereby creating a disorderly market in shares”.

Tyrie also stated that the “The FCA has a statutory duty to investigate cases of regulatory failure but it cannot be permitted to investigate itself. The board has announced that it will involve an external law firm in its investigation. More than that is needed”.

How independent and quick the enquiry will be is yet to be seen.

In its terms of reference the body said it wanted Mr. Davis to come up with the final report “as quickly as is reasonably possible” following the furore after its intentions to investigate the insurance sector were leaked to The Telegraph .

The stated intention is to publish the report of this enquiry, but with a caveat that publication would be subject to any legal conditions. What such conditions may be remains unstated and what may result is a highly redacted report.

There is a very concise set of FCA imposed protocols that apply to Simon Davis, laying out what he can and cannot do. It further states that he can make recommendations as he ‘sees fit’. There does not appear, to me, any mention that these recommendations will be binding.

The terms of reference were issued on the 8th April, updated on the 2nd May and given press indications that billings so far for the work of Mr Davis had really only just entered six figures, set against a provision of £1.7m it would seem that matters are not progressing “as quickly as is reasonably possible”at all.

As Howard Baker once noted, “It is almost always the cover-up rather than the event that causes trouble”.

We wrote to the FCA in regard to the above enquiry, as it does seem to be taking a very long time indeed. It also appears from what we see to be costing a lot of money and will no doubt cost a lot more.

The request under the Freedom of Information Act 2000 we sent is as follows:

“We understand that in April this year Simon Davis, a partner at law firm Clifford Chance, was appointed to investigate the FCA over staff leaking details of a major insurance investigation to a national newspaper, which ended up slicing billions of pounds off insurance company stock values.

We further understand that the FCA will set aside a provision of £1.7m for the costs of this investigation, based on a preliminary estimate.

Given the consensus view that the FCA really should not investigate itself, and that this investigative process involves a number of key individuals being investigated, can you confirm:

Who they are?

Will the FCA be paying their legal costs?

And if so: 

I would be grateful if you are able to confirm the amount of legal costs the FCA has either set aside or has already paid for providing personal legal representation for those key FCA individuals involved in this investigation?

Finally, is it correct that there are delays being caused to this enquiry as a result of problems relating to reaching agreements regarding the above points?

Many thanks for your assistance”.

We received a reply to our questions which I am sure will be of interest to the adviser community as well as the provider community. It read:

Thank you for your request under the Freedom of Information Act 2000 (the Act), for information relating to the Davis Inquiry, a summary of which (numbered for ease of reference) is attached in Annex A.

Your request has now been considered and I confirm that we hold information that falls within the scope of your request.

However, in relation to point 1, we are not able to provide you with the names of some of the FCA staff (below Head of Department level) involved in the inquiry because this information comprises the individuals’ personal data, therefore Section 40 (Personal Information) of the Act applies.

Furthermore, as stated in paragraph 21 of the published Protocol (link below), Clifford Chance intends to name the relevant senior FCA staff members in the report.   As this is information intended for future publication, we will not be providing it to you because Section 22 (Information intended for future publication) applies. For a detailed explanation as to why the Section 40 and Section 22 exemptions apply please refer to annex B, attached.

FCA Independent Directors Publish Protocol and Updated Terms of Reference:

With regard to points 2 and 3, in replying to a previous request for this information, we have said that, based on an initial estimate, we have set aside £750k for Kingsley Napley’s work on the behalf of members of staff involved in the Inquiry, and on the behalf of the FCA to assist with the Inquiry. We have committed to publish the final cost when we publish the report.

Turning to point 4, although this is not a request for information, you should note that no timetable has been set for the completion of this inquiry and there have been no delays caused by the issues you suggest or otherwise.

So, on top of a £1.7m initial cost set aside for Clifford Chance, a further £750k has been set aside for Kingsley Napley, who are to represent FCA staff.

Is it normal, for staff being investigated for possible misconduct in office to have their legal fees paid for by their employer?

In stating that “no timetable has been set for the completion of this inquiry”should the conclusion be reached that something is seriously wrong, after all this statement does not reflect the one boldly made in the terms of reference to see it concluded “as quickly as is reasonably possible”. 

The report is taking a lot of time, could the real reason be that there is an internal legal argument going on here regarding who should/ would or will be hung out to dry that sits outside the original terms of reference.

I am sure firms would not expect to see the FCA covering their legal costs in the event of an FCA investigation, so why should FCA staff have their legal costs covered in this way?

Could it also be that if individuals at the regulator are seen to be at faultinvestors would have grounds for taking legal action against the FCA over the incident. The ABI Director General Otto Thoresen reckoned it was “a definite question” but it would have to await the outcome of the internal review of the FCA.

Otherwise why would £750k be set aside to cover staff legal costs, with more to follow no doubt?

Will we ever be told?

As Paul Simon once sang, “the words of the prophets are written on the subway walls, and tenement halls. And whispered in the sound of silence”.

Simplification – we practice what we preach

Walk the talk

Here are Panacea Adviser HQ we are always looking at how we can improve the experience of our users and to get more from the huge amount of resource that is available via the Panacea website.  Consequently we are delighted to bring you our latest incarnation of the site, with some significant upgrades that we hope will help you with your day-to-day business.

Tailored for you

The focus of the site update has been on making it much more tailored to your requirements, so you can use your own ‘Preference Centre’ to customise the information you wish to see on the home page as well as through the twice-weekly Bento bulletins.

The home page news feed will show everything new that is added to the site, so you won’t miss any useful information, forthcoming events and development materials that may be of use to you.

See at a glance any new content that has been added

Panacea is all about communication and community, so any comments added to the site will ensure this content is ‘bounced’ back up the news feed meaning the focus is always on up-to-date interaction. And, all users are easily able to add their own comments to news, blogs and feature articles.

Four areas to aid your business

We have also simplified the site navigation essentially splitting content into four main areas and housing all existing content under those headings.

This means advisers and paraplanners will be able to easily access the wealth of support and resources.

Tools & resources – an area where information about financial services products can be found all in one place.

Panacea Academy – a centralised area where you can get learning support and assistance with your CPD requirements.

Industry events – where advisers and paraplanners can view both forthcoming events, plus an array of webcasts & webinars from Panacea and Partners alike.

The all new Better Business zone – which contains support-related information and materials to help the community more effectively run their businesses, including business development, marketing, social media, guides & white papers, and assistance with finding a paraplanner.

Additionally, there has also been a significant amount of new information and resources placed in the Mortgage Zone dedicated to those advisers active in the mortgage sector.

Ease of navigation and getting the right information for you has been at the heart of this project. We hope you like what you see!

The blame for pain lies mainly in…

The buy-to-let market is never far from the headlines given there are still some deluded individuals out there who believe renting out property is some sort of ‘get rich quick’ scheme that requires no investment, resource, planning or brains.The facts of the matter are that it requires all those things and much more, and given the economic and lending environment of the past few years it has required them in spades.

Most recently we have the Bank of England requesting further powers not just for residential mortgages, but also the buy-to-let market, that will allow it to introduce LTV limits and debt-to-income ceilings on mortgages secured by landlords. It would seem that some believe buy-to-let lending is responsible for a multitude of sins – the stoking of house prices, the fall in first-time buyer numbers, the lack of house building in the UK and, most probably, global warming. All blame for these can apparently be laid at the door of landlords in the private lending sector.

This move by the Bank of England one might suggest paves the way for full regulation of the buy-to-let sector at some point in the future by the FCA. We are already getting partial regulation of mortgages taken out by ‘accidental landlords’ in 2016 when the European Mortgage Credit Directive comes into force and I suspect there will be a number who believe a sector which currently accounts for approximately 15% of all gross lending now needs to be fully regulated. The fact that buy-to-let is an investment decision and there is still no real clarity on who is actually being protected under statutory regulation, are questions that we still await answers on.

I sometimes feel like the powers that be believe the buy-to-let sector is some sort of ‘dirty secret’ they should be apologising for, when in fact it has been a particularly powerful and necessary force over the past decade or so. Of course, there were excesses in the lending community pre-Credit Crunch but thankfully those ‘practitioners’ have gone to the great buy-to-let lending graveyard in the sky and we are now left with a group of lenders who are practicing responsible lending to the nth degree.

So when I see David Cameron announce to the Conservative Party Conference that the latest addendum to the Help to Buy Scheme – the building of 100,000 homes offered to first-time buyers at below market value – will not be accessible to landlords as if they are somehow criminals, it makes my blood boil slightly. Because the fact of the matter is that without the private rental sector the ‘housing gap’ would be a chasm and the Coalition Government should forget this at their peril. With social and affordable housing levels having plummeted it has been the private rental sector that has taken up the slack and helped a roof over people’s heads that might otherwise have a complete lack of housing options.

The positives in all of this are that the buy-to-let market now has strong foundations upon which to build and I fully expect it to grow its lending share in the years to come. As stated above, it’s come a long way from its pre-Crunch days – landlords have to stump up a sizeable deposit to get a  mortgage (at least 20%) which means they have considerable skin in the game, whilst lenders have stricter criteria in terms of rental cover and have focused much more on ensuring arrears levels remain under control.

While the number of lenders active in the sector continues to grow – the launch of Fleet Mortgages next month adds another to the competitor pack – advisers have grown their knowledge base and are in a position to help and support their landlord clients like never before. Resources for advisers are readily available on sites like Panacea and specialist distributors are also active and able to help those advisers both new and established in the sector.

Given the positive nature of the sector at the moment, one suspects that not even the spectre of full regulation could dampen the spirits of buy-to-let practitioners, however these forthcoming rule changes will impact on businesses and firms should make sure they explore their significance and the cost and resource it will require to maintain compliance.

Cobbs Paradox

Cobbs Paradox could be another descriptive for the regulation of financial services in the UK today.

Cobb’s Paradox states, ‘We know why projects fail; we know how to prevent their failure – so why do they still fail?’

Thirty plus years of regulation with five different regulators and actually, there is an answer, but the question seems to have become unpopular.

As an industry, a regulator cannot prevent every product or advice failure, but a regulator should know enough to prevent most of them if they use what they know smarter?

The use of the ‘Rumsfeld’ argument- There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know” could be an interesting starting point.

Let’s say the FCA are perfect at estimating the probability of better outcomes success. With an estimated 75% probability of success 25% are going to fail some of the time, but they can’t prevent or predict which of the individual ‘outcomes’ will ultimately fail.

So, if you can estimate the probability of success for a universe of ‘outcomes’ and your estimates correctly predict the success/failure ratio of that universe of ‘outcomes’ over time, then you have, essentially, prevented project failure to the maximum extent possible.

But you still have failed projects.

The FCA collects huge amounts of data from firms. Data holds all sorts of interesting opportunities to be explored, and not in the way most would expect.

Data can take many different forms. Regulators are often asked what they do with it all.

The answers may be obtuse, but you can be sure that data can be looked at in so many ways to throw up trends, habits, behaviors’, attitudes. It can be searched and analyzed in simple forms; it can be searched and analyzed in highly complex ways.

This all no doubt builds a very detailed picture of advisers and consumers, their attitude to service and risk management.

The FCA correctly requests data from companies in a bid to understand the markets it is tasked with regulating.

Financial services companies are of course also obliged under law to provide data to the FCA under certain circumstances. For example, under the EU Markets in Financial Instruments Directive (MiFID), financial services companies that outsource data processing activities are generally required to ensure that regulators have “effective access” to data for auditing purposes.

In future the FCA said that the data it collects will be “effectively governed and controlled” and “clearly specified”.

It said it would put review systems in place to ensure it stopped collecting data from businesses where “it no longer meets our needs”.

What all that means is not entirely clear, but to quote another ‘Rumsfeld-ism’

“If you try to please everybody, somebody’s not going to like it”.

Back Seat Drivers

I had a catch-up meeting recently with Keith Richards (not that Keith Richards) and the conversation turned to rebuilding trust in the industry along with some thoughts on the rights and wrongs of how best to do it.

Keith is a passionate supporter of financial advisers with a long and successful track record in that department so his thoughts are certainly worth a consideration. He has spent plenty of time ‘putting himself about’, which means trying to get the ear of the right people – politicians, consumer groups, the FCA, trade bodies, the ABI and many more I am sure.

As you can imagine, this is a full time job in its own right.

Our discussion turned to the quality of financial advice and how, despite advisers’ views that their advice was always best advice, regulators and consumer groups may not always agree.

To illustrate the point, Keith drew the analogy of a motorist being stopped for bad driving by the police after an accident. The driver responds by saying that it was not his bad driving that was the cause of the accident but that of his fellow motorists involved in the incident. Essentially, the driver believes everyone else on the road was an idiot except him. It’s only when the police show the man a video of his driving – which is never a good experience I might add – that he can plainly see that the only idiot is him.

And so it goes with IFAs. His or her advice is beyond reproach; everyone else is rubbish, mis-selling is nothing to do with them and it is all other practitioners that are responsible for bad practice.

Consumer groups reckon, according to Keith, that IFAs are the ‘least worse’ within the financial services industry. I am not sure that advisers would agree, but this the way they are seen.

Power today is not held by the regulator, MPs, select committees or indeed the Treasury. It is held by consumer groups, control of which is in the hands of a small number of very noisy, very well-connected individuals who have no knowledge or understanding of commercial constraints or indeed wish to.

Their agenda is to see the particular consumer group they are aligned to as all-powerful, controlling politicians and regulation with no regard to cost, impact or responsibility on their own part if their actions mean unintended or unforeseen consequences.

These consumer groups are everywhere; in fact anywhere there is a regulator you will see a consumer group in the back seat directing a very big highly dangerous driver towards an accident waiting for a date if regulatory outcomes are to be believed.

To prove the point just take a look at all our nationalised utilities, look at healthcare, food, and education. The list is pretty endless as are the failures.

Regulation, we are told, is a vital part of society; it is local, national, European and some cases global, yet despite its ever invasive, almost viral presence in UK society it seems that the more consumer groups we get, the more we regulate and the worse it gets as a result.

And like the driver in Keith’s analogy, in just about every case, the consumer group will claim it is not their fault but that of all the other idiots. After all they weren’t driving, were they?

What happened to Howard?

What has happened to that well trusted and respected ‘we give you extra’ brand Halifax?

I am not sure if you or your clients have any recent experiences of paying in money to open up a 1 year fixed rate cash ISA? If their experience was anything like mine I suspect that in future the Halifax’s breathtakingly arrogant way of dealing with its customers will see a considerable reduction in new business.

The process to check if account details to pay monies into a Halifax account are correct goes something like this:

  • Dial a number from the website, the call is auto answered.
  • Then a message about caring about the customer experience is played and you are asked if you would like to provide feedback after the call, I so dislike that!
  • Wait for 10.41 minutes to get the call answered, this would not help in any post call feedback of ideas
  • The call is eventually answered by a female with a Liverpool accent so strong it was almost unintelligible
  • Security questions asked
  • Security passed
  • Account details checked and confirmed all OK- time taken now 14.38 minutes
  • The call centre assistant was then asked to check my wife’s account details were correct.
  • The response was that this was not possible because the computer screen only allowed one request to be actioned.
  • My frustration was expressed but the brick wall had been hit. Time taken so far 18.23 minutes
  • I asked to speak with a manager ; a sometimes dangerous move as I have a sense that any such requests often mean you being placed in telecoms oblivion, never to speak with anyone again until you redial and go through the whole painful process again.

At that point I was put on hold and after call duration of 20.53 minutes I spoke to ‘Dave’ (surname not given as it is not Halifax policy to do so). I asked him if he would agree that the time taken and the fact that two individual queries cannot be dealt with in a single call was an acceptable way to treat customers looking to deposit money into cash ISA accounts.

‘Dave’ had no view on the subject but did set about providing a view to a question that had not been asked. After three more attempts on my part to get an answer I realised that another brick wall in Liverpool had been hit. ‘Dave’ has no ability to think outside the script and as a result was unable or unwilling to commit to a view on the problems outlined. The call duration was now 24.49 minutes.

‘Dave’ very kindly offered to launch me back into the system to allow my wife’s account details to be confirmed. I graciously accepted and after call duration of 32.07 minutes a call centre assistant who could actually speak in an intelligible way took the call.

My wife was ID’d, questions asked, answered and fond farewells were said after 36.23 minutes.

I normally have some sympathy toward the problems that financial institutions have in dealing with calls but this Halifax example of caring, sharing beggars belief and should be seen as a masterclass in how to really upset your customers without even trying.

Halifax customer service, if my experience is a bellweather, is simply ‘shite’.

The ‘people who give you extra’ do not quantify what that extra is.

I can assist them in that department if they cared to listen, but as with all organisations that go big on brand image creating a real style over substance offering, they do not want to hear, they are incapable of a corporate listen. They talk the talk but fall over after the first steps of the walk.

Get grip Halifax, nobody should have to put up with this type of treatment.

Howard Brown left the Halifax in 2011, after bosses decided he was ‘too jolly’.

Well nobody is laughing now.



Miracles happen, or is it just wishful thinking?

The restoration of trust in the industry is vital for its success going forward. But trust works both ways. Firms should have trust in the regulator and the regulatory process that should be nurtured by a mixture of clarity, fairness and pragmatism.

Ombudsman decisions should be based upon the evidence available and/or the balance of probability. They should not be based on ‘coulda, woulda, shoulda’. This survey, exactly like the one we did in 2011, makes it clear that ‘creative Ombudsmanning’ is still at work and that is not fair. Until firms have confidence in a consistency of fairness of adjudications and clear evidence of impartiality, an unobstructed path to regaining trust is just not there.

Ombudsman decisions should reflect the processes, rules and rigour that a previous, relevant and applicable Ombudsman would have to take in an adjudication process. Decisions increasingly seem to be made, if our survey is to be a guide, with the benefit of hindsight and an application of today’s regulatory expectations rather than the rules and standards of previous regulators like FIMBRA, PIA and the FSA. That does little to support the ethos of an Ombudsman’s role of being an independent resolver of disputes and again, little towards regaining trust in the industry.

Experience and understanding of the markets one regulates is vital to ensure good Ombudsman decisions. Is it not therefore, by default, important that those who adjudicate on complaints have an equal understanding and, even more importantly, extensive experience of what was accepted practice and regulation then, not what is now and work back?

Tony Holland, the PIA Ombudsman, ensured all his adjudicators had relevant industry standard qualifications, this rule also applied to himself. His recommendation to Walter Merricks to ensure this practice continued when taking on the FOS role was ignored.

To see so many advisers seeing fraudulent claims is a frightening statistic and it does little in the ‘support department’ for regaining trust in the industry if you are fighting a battle to see trustworthy behaviour from your clients. The ability for some consumers to lie knows no bounds it would seem.

Stress is a big part of any complaint resolution process, for both sides. It is worsened however for the adviser firm when the complaint is simply and clearly a fabrication that could/ should be recognised very quickly in the adjudication process but for some reasons often fails to be.

Grooming’ – a word not often applied to financial services.  70% of respondents have seen awards made for an event hat has not actually happened or has not been complained about. This is way too high. The FOS role should be to adjudicate on the balance of evidence available and/or probability. It is not a licence to ‘go fishing’. Although I have no evidence to support the view, some say that the FOS process is target driven; the more cases that find their way into the system means bonuses for those concerned. If that is true, again, this does not help restore trust in the industry.

This is effectively a form of commission?

We have seen changes to the employment tribunal rules where, amongst other measures, the claimant has to lodge £1,000, which they forfeit if the case is found against them. These new rules have seen a dramatic reduction in claims

The key to good adjudication is the evidence available; it is inconceivable that the UK justice system would have survived for so long if 86% of those in the ‘dock’ felt that the judge or jury had already made up their mind before hearing the evidence. In many FOS cases it would seem from the survey that evidence is secondary to the need to ensure the consumer is the winner. This is not a game of consumer winners, or losers, it is about the perception of both parties view of fairness of decision making.

The latest figures released revealed in regard to employment tribunal cost changes show that between 2012 and 2013 there was a 79% reduction in claims. I feel a similar outcome would occur if a liability deposit cost applied to FOS cases. That would also have the effect of reducing the regulatory cost of doing business that in turn could be passed back to the consumer.

Walter Merricks said, quite unashamedly, that at the FOS, ‘we make the law’. Link that to failure or inability to supply evidence by the claimant and instead of placing a firm in a strong position the exact opposite is achieved and it is no wonder advisers feel the system is unfair.

The long stop is such a contentious issue, it is also the case that the Ombudsman’s rules make it clear that any decision made should give consideration to the Ombudsman’s rules applicable at the time the advice was give. The ‘Merricks’ interpretation of the word ‘consideration’ linked to the FSMA 2000 actions around the longstop have led to the unfairness problems we have today. It is immoral and most would take the view it is an illegality that requires legal challenge if reasoned argument fails to persuade.

It is encouraging to see the stoicism of advisers in the face of much adversity; really the question to ask (that for obvious reasons we could not) was: ‘Are you planning to enter the industry within the next two years?’

At the moment the costs and liabilities incurred by poorly thought out, ever changing and often retrospective regulation makes taking on new entrants an unattractive option for many firms. And an impossibility to start a new firm from scratch, ie no clients like many of todays long standing firms did.

To summarise, and as noted in our submission of the survey to MP’s and the regulator, “consumers absolutely have rights that should be strongly protected, but in doing so the adviser consensus seems to be that those rights would appear to be taking precedent over everything else. Confidence in a fair and unbiased Ombudsman service is vital and the right of all who use or engage with the service, the complainant and those complained about”.

To see the full survey results with all the comments, simply download this pdf.

Advice 4 You

Earlier in the year we explored the Waterbed effect, a phenomenon that has the natural (not necessarily intended) potential, to squeeze one part of a complicated and complex regulated business model to cause a serious bulge elsewhere in the process.

It is a common sense albeit simplistic analogy supported by a little known mathematical formula called Bode’s Sensitivity Integral.

The Waterbed effect has been well illustrated in the mobile phone industry where regulation and political interference fixes, distorts or manipulates the prices of basic products and services only for consumers to see complicated pricing structures ensue by way of significant increases in the price of peripherals and additional services as a direct consequence.

Airtime providers have been hammered by regulated price cuts to the cost of phone calls, in particular with the EU parliament setting very strict limits on how much customers can be charged for using their phones on holiday. The ‘Waterbed effect’ in this case is that these airtime providers have been looking to take out cost from their businesses and the chosen method is to self distribute.

So although it may come as a surprise that Phones 4 You has shut up shop, the industry and politicians should take note. Because what happens in one industry with an intermediated distribution model can easily move to another.

Financial services providers are still feeling their way after RDR. They have seen their ‘distributors’ segment client bases, re-evaluate business models and move away from the selling of products to the selling of advice.

Typically in doing so, these firms have concentrated on servicing much smaller numbers of clients, the unintended ‘Waterbed effect’ here being that the mass market consumer has no longer got somebody independent to ‘buy’ from or be ‘sold’ simple products by for ‘free’.

Simplified advice as the FCA advocates is simply a non-starter at the moment and all those product providers have businesses to run, products to design and products to sell.

Do not be surprised if the future of financial advice sees itself as a ‘Doppleganger’ of the mobile phone industry with the ‘Waterbed effect’ being the realisation that the mass market is a huge opportunity but a minefield the consumer will have to walk through unaided.

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