Longstop matters – who cares

I exchanged some tweets, phone calls and e-mails over the last few days regarding the e-petition for Fair Liability for Financial Advice –http://epetitions.direct.gov.uk/petitions/52958.

This is an excellent initiative started by Helen Turner at Tenet, an initiative that really deserves support. But, the e-peitition expires on the 23rd July and I am very concerned that only 6,402 have signed this at the time of writing. Helen’s target is 10,000.

It may be that RDR has dulled adviser sensibilities but for goodness sake, when will the realisation dawn that the continual refusal to reinstate the longstop by the FSA and the current FCA position of ‘willing to discuss’ will probably see the same ‘outcome’. No longstop in place.

APFA is keen to be seen as having succeeded in getting the FCA to conduct a review of the longstop but many advisers would see this as too little, way, way too late. Additionally,those in APFA leading this campaign need to have a rethink about strategy and unless you advisers start ‘stamping your feet’ in greater numbers, nothing will ever get done.

I think regulator attitudes over many years and from many regulators has confirmed that with 20% plus reductions in the adviser community, linked to very poor trade body leadership over many years, a singularly consistent willingness to ‘capitulate’ on the longstop and other key issues by successive APFA and AIFA leaders, regulators past and present see advisers as weak.

And with a weight of a regulatory induced loss of trust seeing public opinion supporting the concept that anyone in financial services is a ‘villain’, they can ride roughshod over a decent group of highly regulated people concerned about their livliehood and future security, especially in retirement.

APFA have a meeting with the FCA soon on the longstop. Despite earlier reports to the contrary, Alan Lakey (the only APFA council member with actual detailed knowledge, understanding and experience of fighting the longstop) has now been invited by APFA to attend that meeting however we do not of course encourage blows to be exchanged.

Such a meeting is a good sign in some ways, but given that the definition of a pessimist is simply a well-informed optimist, I would take the view that the result will be a reworking of old arguments. That is that unless the reinstatement of the longstop can be proven to have no consumer detriment…well you know the rest.

There is a sense amongst many advisers that by simply being a limited liability company or partnership this provides protection from stale claims. I would suggest that advisers think again. A substantial stale claim, or a number of them, if successful can put your limited liability company out of business. And given that ‘phoenixing’ is a thing of the past, and the FSA and now FCA see liability and responsibility falling upon controlling individuals in certain instances, you should, in ‘Hector speak’ be very afraid.

The point is clear about the longstop, in fact follow this link –http://www.panaceaadviser.com/main/p20.php?cx=014967606690113664965%3Aghrmkhjba3a&ie=UTF-8&q=longstop&search=go- and you can see how much involvement we have had in the campaign to reinstate.

The Limitations Act should apply to all citizens in this country, not an ’Animal Farm‘ version. And only Parliament can act to either impose or remove protection from the law. In not referring to a removal in FSMA 2000, Parliament did not remove it, as the regulator would suggest it did.

Barrister Peter Hamilton summed up the whole lack of longstop position very well as follows: “Thus, under the law, I know in advance where I can and cannot park my car. But if I could park only where some official specified after the event, I would have no right to park at all. Similarly, if my right to my possessions is watered down to mean only a right to hold them until the FOS decides it is fair and reasonable for me to pay them to somebody else, then I have no ‘right’ in a true sense to my possessions at all. This conclusion is reinforced by the fact that there is no appeal and the fact that any judicial review of a FOS decision on the merits of a case is, for all practical purposes, impossible because of the vagueness of the subjective (‘in the opinion of the ombudsman‘) fair and reasonable criterion”.

The e-petition needs 100,000 votes to get a debate in Parliament, which is unlikely however 10,000 would be noisy. In addition to a successful judicial review being granted or a case going to the European courts, this is your opportunity to begin the fight back.

Sign now, or as they say, forever hold your peace…and suffer the consequences.

www.panaceaadviser.com

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Post RDR advice costs. “What’s it all about Alfie”?

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I read a comment earlier in the week in relation to this headline “Aifa and Deloitte disagree on independent advice cost. Independent advice is likely to cost more than restricted recommendations, Deloitte warns, while Aifa says charging will be unaffected”.

It said I would have thought that it makes no difference what sort of advice is provided because it will all cost the same in time and of course the cost of regulation just keeps increasing while the failures increase in size. What’s it all about Alfie?? 
Strangulation by regulation because supervision has failed?

And I guess the question must be what the unintended impact of regulation has done and it will do to the cost of advice and the relationship impact upon the Consumer?

Deloitte’s say that IFA firm compliance costs will no doubt increase due to the need to ensure that advice meets the now less than “clear English” FSA definition of independent status.

These are of course all part of the costs that are borne by firms in doing business, but let there be no doubt, these will be paid for by the consumer.

Or more accurately, it is expected the consumer will pay, but will they want to?

Do they see value? Well that is the challenge for firms, finding a way to demonstrate value in their proposition.

Do they see the purpose and benefits of independent advice or will consumers care??

Will restricted advice offer lower costs to consumers?

AIFA see that firms charging will not be affected by the model a firm adopts, I am not sure I see this is possible.

It is understood that certain platforms may offer different remuneration packages depending on the status of the adviser they are dealing with. Does this mean a restricted firm will have more or less attractive options than the independent firm?

What of P.I. costs in all this expense?

These are rising and will rise more. Why? Well a contraction in the market does not help and although P.I. is mandatory for firms it is a fact that P.I insurers are hit hard too due to the oft-denied application of retro regulation on IFAs.

Having read the FSA RDR guidance on Independent and Restricted advice one wonders what the point of P.I is any more.

Section 2.15 of the guidance states:

“If a firm cannot or will not advise on a particular type of retail investment product, and that product could potentially meet the investment needs and objectives of its new and existing clients, then its advice will not meet the standard for independent advice.

In other words, the justification for a firm excluding types of retail investment products from its range needs to be centered on the client. As an example, the fact that a firm’s professional indemnity insurance policy specifically excludes certain products would not be a valid reason for never advising on such products”.

P.I is really redundant TODAY as a suitable insurance cover for many adviser firms because the excesses are so high and often matched with many restrictions. It is now a one shot stop gap disaster cover for smaller firms. Link this to the possibility of multiple claims and a firm will be see no alternative but to shut up shop as it simply cannot afford the claims, an attractive option for limited liability firms.

And where do the claims go- the FSCS of course.

Maybe time for a re-think, P.I. could be abolished and the premiums go to create an industry self-insured pool within the FSCS along with a Consumer levy?

The Consumer always pays in the end but at least this thought would demonstrate greater consumer transparency and move it away from the cost of advice and place it firmly into the cost of protection where it really should be.

As the song goes What’s it all about, Alfie?
Is it just for the moment we live?