How much is that doggie in the window?

Panacea comment for Financial Advisers and Paraplanners

26 Feb 2018

How much is that doggie in the window?

This HMRC document hit my desk last week. What a great idea, it shows how your ‘hard earned’ is spent by the state on your behalf.

Out of a tax take of £19,302 the welfare spend is more that the amount taken for servicing the national debt, education and defence combined. And they are the 4th, 5th and 6th highest spends.

Welfare accounts in this case for almost 25% of this total tax gathering for 2016/17.

I used to hear a lot about hard pressed families in the lead up to the last couple of elections and I think there was a strong political point to make, but the point set the wrong thought processes off.

If this taxpayer is anything to go by, those hard-pressed families could be in such a situation because 25% of each taxable element of their working day is spent on providing welfare of some sort to recipients various and unknown.

Perhaps in the brave new world of disclosure, this document should give a breakdown subset of how this money is spent, where it is spent, who spends it and on what exactly.

There are some other very interesting perspectives thrown up in this document. The last in particular around the UK contribution to the EU budget. It is just £135, some 0.7% of the total bill.

I was/am very keen to see Brexit actually happen. I doubt it ever will.

But instead of sending buses around the country with messages on the side illustrating how much could be made available to add to the £3,918 from this tax bill on the NHS in the run up to the referendum, voting may have been somewhat different if the amount each taxpayer actually contributed to the EU was set out just like this.

I await another statement for 2017/18 that I assume will show how much has actually been spent from this income tax breakdown on Brexit?

Sadly I fear we will never know.

 

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Stinking badges 3

Panacea comment for Financial Advisers and Paraplanners

23 Feb 2018

Stinking badges 3

For those of you who remember the Mel Brooks classic ‘Blazing Saddles,’ the town of Rock Ridge was being held to ransom by out of control Mexican bandits who proudly proclaim to the Mayor, Hedley Lamarr, that in a town with no sheriff, to cause havoc they “don’t need no stinking badges”.

So fast forward to the 21st Century where Rock Ridge is now ‘policed’ by the new bandits in town- Claims Management Companies (CMC’s)

Wheels turn slowly, but those who recall our campaign, with Alan Lakey, on the regulation of CMC’s will note some very positive ‘outcomes’ after a number of meetings with Kevin Rousell, Head of Claims Management Regulation Unit at the Ministry of Justice.

Kevin recently let me know that the House of Commons was working on the FINANCIAL GUIDANCE AND CLAIMS BILL [LORDS] Public Bill Committee: 25 January 2018.

In ‘Blazing Saddles’ parlance, Bart has just ridden into town.

There is an amendment which inserts a provision into the upcoming Privacy and Electronic Communications (EC Directive) Regulations which prohibits live unsolicited telephone calls for the purposes of direct marketing in relation to claims management services except where the person called has given prior consent to receiving such calls.

Do read the whole bill but in particular section N6 which states:

Financial Guidance and Claims Bill-[Lords], continued

After regulation 21 insert—

“21A Calls for direct marketing of claims management services

  1. (1)  A person must not use, or instigate the use of, a public electronic communications service to make unsolicited calls for the purposes of direct marketing in relation to claims management services except in the circumstances referred to in paragraph (2).
  2. (2)  Those circumstances are where the called line is that of a subscriber who has previously notified the caller that for the time being the subscriber consents to such calls being made by, or at the instigation of, the caller on that line.
  3. (3)  A subscriber must not permit the subscriber’s line to be used in contravention of paragraph (1).
  4. (4)  In this regulation, “claims management services” means the following services in relation to the making of a claim—
    1. (a)  advice;
    2. (b)  financial services or assistance;
    3. (c)  acting on behalf of, or representing, a person;
    4. (d)  the referral or introduction of one person to another;
    5. (e)  the making of inquiries.
  5. (5)  In paragraph (4), “claim” means a claim for compensation, restitution, repayment or any other remedy or relief in respect of loss or damage or in respect of an obligation, whether the claim is made or could be made—

(a) by way of legal proceedings,

(b) in accordance with a scheme of regulation (whether voluntary or compulsory), or

(c) in pursuance of a voluntary undertaking.”

Readers may wish to refer to “Stinking badges 2” from August 2016.

It is well documented how claims management companies have plagued this industry in recent years.  Many of these have lied, cheated, deceived and generally operated in a base and underhand manner.

Alan noted “The Ministry of Justice unit at Burton on Trent had been unable to deal with the excesses in a sensible manner and when foul behaviour has been determined the response is often the equivalent of a slapped wrist and a bad telling off. 

Hopefully this bill will sound the death knell at long last for this legally assisted parasite that feeds off the world of financial services.

Stop the shorting monster

Panacea comment for Financial Advisers and Paraplanners

17 Jan 2018

Stop the shorting monster

A short sale is a transaction in which an investor sells borrowed securities in anticipation of a price drop and is required to return an equal number of shares at some point in the future.

A short seller makes money if the stock goes down, a lot of money if it drops a lot.

Shorting is legal. But is it morally acceptable?

This is a question that many outside the financial services industry will be asking, especially when there is such a baying for the blood for directors’failures, political failures, huge salaries being paid for gardening leave and in particular the huge sums of money being owed to small contractors and in fact to Carillion by those it worked for.

Hedge funds have made paper profits of hundreds of millions of dollars over the last year. Shorting of Carillion stock will have done their bit to boost the coffers.

The thirty thousand small firms in Carillion’s supply chain now face an anxious wait to see if they will be eligible for any government help to pay an estimated £1bn of outstanding bills. Many will fail, quite possibly because without the cash they cannot pay their tax bills on the 31st January, but the hedge funds will have no such dilemas

Rudi Klein, chief executive of SEC Group, which represents thousands of small businesses, said it was “inexcusable” that Carillion had “imperiled the supply chain”.

Hedge funds shorting will not have helped.

Conservative MP Bernard Jenkin amazingly came out with that great stock phrase so often used in times of collective failure, on Tuesday’s Channel 4 news, that he would be calling the company’s management, employees and customers as part of a bid to “learn lessons” from this unholy governmental fuelled mess.

What!!!!!

Why not the hedge funds too, who could see only too well that this was coming ages ago?

I think all those small businesses who worked on Carillion contracts that had payment terms of 120 days may think that this is too little too late.

Perhaps now is the time for the FCA to look at shorting and considering banning the practice as shorting just rubs salt into a very large and gaping Carillion wound and will continue to do so when this type of thing happens again, which it will.

Just a thought.

Regulation, competition and consumers

Panacea comment for Financial Advisers and Paraplanners

2 Jan 2018

Regulation, competition and consumers

Please do not get me going so soon in 2018, after all it’s only the first full working week of January

The FCA has released the minutes of its November 9th board meeting. Buried within the text was an interesting section on competition. The minutes noted that:

The Board received the draft Approach to Competition document outlining how the FCA seeks to promote competition in the interests of consumers. It was noted that surveys had shown that competition was the least understood of the FCA’s objectives and so the document would form a useful piece of communication, demonstrating that FCA regulation promotes competition, which is fundamental to making markets work well.

There is something very wrong, very wrong indeed. Could it mean that somebody in Canary Wharf is having a Damascene conversion.

By default or intent, the various regulators over the years I have been active in the industry, from Nasdim, FIMBRA, PIA, FSA and FCA have spent their time in ensuring that the very last thing done is to promote competition. In fact, the very daily act of regulation would seem to be to do the exact opposite.

I think we could look back at many examples of this such as the removal long ago of the maximum commission agreement to RDR, the removal of commissions and a move to fee-based advice.

I had the great fortune to sell my IFA practice 12 years ago, a driver for taking the plunge was that having worked under the ‘control’ of four different regulatory regimes- NASDIM, FIMBRA, PIA and FSA. The prospect of never seeing longevity of regulatory regimes, the application of common sense and fairness all went to paint a very bleak future.

The jury may still be out in that regard, but I think we are at the stage where the judge may be directing the jury that a majority decision would suffice.

I am not normally driven to negativity, cynicism maybe, and while I do see an absolute need to have regulation of financial services, it seems to me that wherever there is regulation, consumer detriment and extreme cost is the outcome with blame being laid at the door of the weakest.

Some key facts to digest:

  • Regulation is poorly thought out in just about every industry
  • It is reactionary rather than pro-active
  • It is not always retrospective, although in financial services it seems to be an exception
  • Nobody ever listens to the voice of experience
  • Nobody ever learns from past failings
  • Nobody in regulation admits failure
  • Nobody in regulation takes the blame
  • Everyone in regulation benefits from yearnings, learnings and earnings
  • Regulatory failure is rewarded not punished
  • Regulation is an industry, it is hermaphroditic, capable of self-procreation and without something to bash it would have no purpose. As Keith Richards (Rolling Stone not PFS) once said “In the business of crime there’s two people involved, and that’s the criminal and the cops. It’s in both their interests to keep crime a business, otherwise they’re both out of a job.”

Regulation should not be pursued at any cost and in such a way, applied like a tattoo only to be regretted when the effect of the alcoholic or love induced stupor that fuelled its creation has gone away.

Has the consumer benefited?

Many may say no.

It would seem that the FCA may be considering that as a distinct possibility

Access to financial advice for the masses has been exterminated. Even if it was freely available in the fiscal sense, there is insufficient capacity to service any more than around 10% of the population based on the recent Heath Report and the FAMR will not correct that imbalance as was intended.

The problem with regulation over the years and as we enter 2018 is that you cannot regulate for lack of common sense, yet that is what we keep trying to do. Caveat emptor has gone at the expense of the consumer rather than in their defence

We have lost the use of that in-built gene of common sense when looking at constructing and applying regulation. Its loss went along with map reading skills, crossing the road after looking both ways, not talking to strangers, proficient cycling, spelling ability, simple mental arithmetic skills, writing, eating with a knife and fork and very many more.

The world has truly gone mad, or at least it has in UKplc’s regulation section.

We have a snowflake society that is now readily and speedily offended on somebody else part for just about everything that simply should not matter as much as it does.

We have borders that are not fit for purpose, we have an NHS in meltdown because the service is now aspiration and expectation based, rather than focusing on the basics of its original 1948 founding principles (comprehensiveness, within available resources) and a country controlled not by UK based elected politicians but by unelected civil servants, quangos, eurocrats and regulators.

To top that we now have ‘Brexit’.

I did say do not get me going so soon!

The problem with regulation is that you eventually run out of other peoples’ money

Panacea comment for Financial Advisers and Paraplanners

8 Jan 2018

The problem with regulation is that you eventually run out of other peoples' money.

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

And the regulator in just about every case will claim it is not their fault.

Regulators raison d’être is to ensure that consumers are protected at all times, now verging on protection from themselves.

But regulation is self-perpetuating, a real-life version of perpetual motion that pays a lot of money to those for whom that career path is chosen. Here is some interesting information on FCA salaries.

We all know about the failures of regulation in financial services, but, would UK plc and its population (now commonly referred to as ‘vulnerable consumers’, ‘stressed commuters’, ‘long suffering motorists’ or ‘hard working families’) be better off as a result of much reduced regulatory action.

Should it be replaced with that all important mix of (fast diminishing human attributes that regulation has rendered idle) common sense, caveat emptor and intuitition?

Below is a sample selection of regulators, where I think many reading this would see systemic, chronic confusion, failure, cover ups, unintended consequences and huge spends seeing zero benefit for everyone except those that work in regulation.

There are many, many more.

Electricity regulation: OFGEM is the regulator; their strap line is “making a positive difference for energy consumers”. Deregulation and creating free markets (that in fact now need all this regulation) or the failure of regulators to keep up with fast-moving markets, can become unbelievably costly, as we can all now see. The worldwide electricity sector reforms of the early 1990s have revealed the complexities of introducing market driven reforms and making them work in network and infrastructure industries.

Were we better off pre- denationalization and pre regulation with just one supplier?

Gas regulation: OFGEM again. Ofgem found British Gas incorrectly blocked businesses from switching and failed to give some businesses notice that their contract was due to end. The fine was £5.6m, but really just another large fine that means nothing.

Most complaints about energy companies are about inaccurate, late or unclear energy bills. The Code of Practice for Accurate Bills from the Energy Retail Association sets out requirements for how energy bills should be calculated and issued.

Were we better off pre- denationalization and pre regulation with just one supplier?

Food regulation: That other FSA, the Food Standards Agency. Paris says Brussels and London are dragging their heels over proposals to improve food safety by introducing the labeling of meat in ready-made meals. And only last week we hear that the lamb in our kebabs is chicken or beef. The cost of food labeling compliance in the UK is estimated at £32.5m for just one major retailer.

Were we better off pre-regulation? Were we better off when we did not have supermarkets and fast food outlets, seeing what we brought at butchers, bakers, greengrocers?

Telephone regulation: OFCOM is the communications regulator. They regulate the TV and radio sectors, fixed line telecoms, mobiles, postal services, plus the airwaves over which wireless devices operate.

The regulatory ‘Waterbed’ effect is already well illustrated in the mobile phone industry where regulation fixes the prices of basic products and services only for consumers to see significant increases in the price of peripherals and additional services as a direct consequence.

Were we better off pre- denationalization and pre regulation with just one supplier, the GPO?

Railways: ORR The Office of Rail Regulation are the economic regulator for railway infrastructure (Network Rail and HS1); the health and safety regulator for the rail industry as a whole – including mainline, metro, tramways and heritage railways across Britain; and the industry’s consumer and competition authority.

With rail fares up again in 2018, were we better off pre- denationalization, privatisation and pre regulation with just one supplier- British Rail?

National Health regulation: Now here it get’s really complicated and it is little wonder that healthcare is in such a mess.

In hospitals we used to have a simple management structure, it was called ‘Matron”.

Look at these regulatory bodies, is it any wonder that we see so many problems, with the very simple mission objective being to make people better being thwarted at every regulatory door, often ending it would seem in DBNHS (death by national health service).

MHRA is the government agency responsible for ensuring that medicines and medical devices work, and are acceptably safe.

The MHRA is a centre of the Medicines and Healthcare Products Regulatory Agency, which also includes the National Institute for Biological Standards and Control (NIBSC), and the Clinical Practice Research Data link (CPRD). The MHRA is an executive agency of the Department of Health.

CQC’s The Care Quality Commission (CQC) makes sure hospitals, care homes, dental and GP surgeries, and all other care services in England provide people with safe, effective, compassionate and high quality care, and encourages these services to make improvements.

NICE National Institute for Health and Care Excellence provides national guidance and advice to improve health and social care. It develops guidance, standards and information on high quality health and social care. It also advises on ways to promote healthy living and prevent ill health.

HFEA Human Fertilisation and Embryology Authority is the UK’s independent regulator dedicated to licensing and monitoring fertility clinics and research involving human embryos.

NIHR The National Institute for Health Research is a large, multi-faceted and nationally distributed organisation. Together, NIHR people, facilities and systems represent the most integrated clinical research system in the world, driving research from bench to bedside for the benefit of patients.

PHE Public Health England was established on April 1st 2013, just like the FCA, to bring together public health specialists from more than 70 organisations, including the former Health Protection Agency (HPA), into a single public health service.

PSA Professional Standards Authority for Health and Social Care promotes the health, safety and wellbeing of patients, service users and the public, by raising standards of regulation and voluntary registration of people working in health and care. It is an independent body, accountable to the UK parliament.

Is it any wonder that doing businesses, society and life in general is made more expensive, difficult, confusing and less fit for purpose?

Here, with some help from Wikipedia, is a list of some I may have missed:

Charities

Education

  • Ofqual – Office of Qualifications and Examinations Regulation
  • Ofsted – Office for Standards in Education, Children’s Services and Skills

Environment

Finance

Health

Law

Social Care

Transport

Utilities

PhonepayPlus – regulator for phone-paid services in the UK, part of Ofcom, replaces ICSTIS

Others

EU leaders meet in to discuss ways to improve growth and competitiveness across Europe. Using data from the UK Government’s impact assessments of these rules, Open Europe estimated that the top 100 EU laws cost the UK economy £27.4 billion a year. This was more than the UK Treasury expected to raise in revenue from Council Tax (£27 billion). 
And laws equal regulaton equals regulators.

Those hardworking families are doing so just to keep this lot going.

The unintended cost burdens of regulation in the UK are almost unquantifiable, certainly vast and in almost every case there are grounds to think that life could be simpler, cheaper and more fulfilling if we all took responsibility for our actions, adopted common sense in management styles, business practices, directives and substituting ‘elf and safety’ with sanity.

Time for a rethink?

The conundrum of Robo Responsibility

Panacea comment for Financial Advisers and Paraplanners

21 Nov 2017

The conundrum of Robo Responsibility

Earlier this month Professor Stephen Hawking issued a chilling warning about the imminent rise of artificial intelligence. During the new interview, Professor Hawking warned that AI will soon reach a level where it will be a ‘new form of life that will outperform humans.’

There is a move afoot to bring the delivery of financial advice into the 21st century. After all with the smart phone, tablet and virtual reality all breaking through boundaries, why should financial advice not find itself in the vanguard of change?

It should work, could work, but will not work until something very simple yet clearly requiring a considerable volte-face takes place.

So, here’s a thought for you lovers of Steve Jobs and even Ned Ludd.

This may take a little of your time but bear with me please.

Steve Jobs reckoned that “Older people sit down and ask, ‘What is it?’ but the boy asks, ‘What can I do with it?”.

Smart technology exists and is readily available in the average home. Algorithm based analytics are there, right now, to deliver for the mass market an automated method of providing the average family with the ability to self medicate their financial ailments and prescribe a solution.

This happens in many areas of web based life today so why not financial services?

The elephant in the room of progress is the word ‘advice’. Because in the financial services world where products are delivered/ sold/ distributed by the intermediated channel the buck of responsibility always stops with the financially weakest part of the process, the advisory firm.

Product failure, rather like design failure in modern airliners, is unheard of. With an airplane the crash blame is pretty much always directed at the pilot.

Robo or automated solutions should work, it is all in the ‘math’? Very complicated algorithms drive the customer to a very specific outcome.

This is where it gets complicated because at the moment should the algorithm prove in five, ten or fifteen years to have had an unforeseen glitch regulatory retrospective retribution will rain down on the advisory firm, not the maker of the programme.

There is a simple solution to a complex problem.

That is to have the algorithms certified as fit for the purpose they were designed for.

Fit for purpose accreditation already exists in other areas of regulation. Aircraft cannot fly in UK airspace without CAA approval. Drugs are certified as fit for purpose and prescription with the Medicines & Healthcare products
Regulatory Agency.

So why can the FCA not approve automated advice models as fit for purpose?

The answer according to Andrew Mansley at the FCA, who I spoke to at some length at the PFS Festival, is that it would be “anti competitive”.

What!!!!!!

There are examples of this statement being used to create chaos and detriment in this industry. The Maximum Commission Agreement springs to mind. For those new to the world of financial services this is an essential read

For those with not enough time served in this industry, you should know that from the late eighties increased commission levels from larger distribution channels were being sought after the OFT got rid of the Maximum Commission Agreement (MCA) as it was seen to be anti-competitive.

I suspect the real reason would be that, in the words of Hector Sants, not known to Mr. Mansley, “if the regulator was to take responsibility for it’s actions, nobody would want to do the job”.

The FCA needs to consider the following simple steps to improve the embrace of automated opportunities.

  1. All robo models should apply to the FCA for approval, that approval will certify what the programme can and cannot do and rather like a fully automated vehicle
  2. The FCA approval will apply to the algorithms and the programme
  3. Any changes, upgrades would require a certification upgrade
  4. The robo technology would require PI cover for any unforeseen failures and not the adviser firm
  5. The advisory firm would NOT be responsible for any advice/ guidance failure of the robo programme as part of the FCA sign off
  6. In October last year, Professor Stephen Hawking warned that artificial intelligence could develop a will of its own that is in conflict with that of humanity. With this in mind, the advice responsibility buck stops with the technology provider and not the adviser

 

Put these in place and both the regulator and the software house would think very carefully about failure, the adviser could engage with more consumers with confidence restored.

We can always dream?

Back to the future

Panacea comment for Financial Advisers and Paraplanners

9 Oct 2017

Back to the future

Another major brand has announced that it is about to increase its financial planning operation with a hire of some 30 new advisers and another 70 next years. A sure sign that the 2017 advice gap provided both opportunity and a solution to dealing with the thousands of disenfranchised customers of major, highly reputable brands who have to find a way to service former IFA clients who no longer have an IFA, having fallen victim (if that is the right word) to IFA segmentation since RDR.

In 2011 I noted there was growing concern about what consumer reaction would be to what has now been done in their name by the then regulator, the FSA.

I observed that as there were only so many high-net worth clients out there, what will happen to the mass market advice model, and asked what will happen to the “orphan clients”? Will we see the return of the “Man from the Pru” and provider ‘sales’ forces?

It would seem I was right some six years later.

Trade press of 4th March 2010 alerted readers to a then quite astonishing admission by the FSA’s then Head of Investment Policy Peter Smith.

It reported that when speaking at a Chartered Institute for Securities and Investment Private Wealth Management Conference in London, he spoke about the potential for consumers rejecting the big idea about adviser charging and confessed, “If consumers still do not want to engage with it then we probably will have to do something else.”

This really beggars belief. The various discussion and consultation documents have thrown up numerous proposals, many of which have been dropped, reformed or deformed and it is absolutely clear that much RDR directional thinking had been navigation at sea with only a world atlas to chart the way- something that will give a general idea of what landmass is where but zero detail about the hazards presented by the ocean the vessel is travelling on.

This may be acceptable behaviour in regulation-world but let’s not forget that it is the advisers and consumers whose boats would be heading for the rocks.

It was clear in 2010 that the regulator failed to understand the psychology of adviser/client interaction. In 2011 it was the same but it has no intention of listening to the responses from experienced industry navigation professionals, providers, lawyers, MPs, trade bodies and of course advisers.

Not content with being the body that was asleep at the helm when Northern Rock slammed into the rocks followed by the rest of the UK banking “Armada” it seems the FSA also wanted to be remembered as the quango responsible for the decimation of retail financial services.

With all this in mind, perhaps we should look back to 17th June 1999 and the Commons 1st reading of the FSMA 2000 bill and ask the question, why does nobody in regulation ever learn from it’s past mistakes.

The transcript of this debate from 1999 highlighted  so many issues of concern that were expressed then with the seemingly strange phenomenon in the regulatory world of foresight!

Nobody listened then and I am reminded of the quote from the late Bob Monkhouse when thinking about the impact of poorly thought out regulation upon the consumer of tomorrow “They laughed when I said I was going to be a comedian. Well, they’re not laughing now”.

The industry is not laughing now, neither was the mass-market consumer after the 1st January 2013.