FSA cross-subsidy crackdown is an affront to business
Simplistic dichotomy enforced with a heavy hand unnecessarily limits business freedom
I thought there was nothing left in the remnants of the Retail Distribution Review that could surprise me.
The incoming rule changes are so pervasive that they have been discussed and deconstructed forensically over the past five or so years. Dig though we all might, there were surely no hidden gems left of any real shock value.
But then, like anything so wide reaching, god is in the detail. Or perhaps it would be more apposite to say that the devil is in the detail.
The golden nugget to which I am referring was contained within the Financial Services Authority’s latest RDR newsletter, specifically within the section in which it highlights areas of concern that it is currently monitoring.
Typically these issues relate to attempts to in some way circumvent the remuneration rules and maintain a form of illicit recurring income post-2012.
Surely the principle of needing to ensure consumers are adequately protected cannot be allowed to completely override basic principles of business
Thus, tucked away alongside now well-worn warnings over non-commission recurring income, which made a second consecutive appearance this time around, was a warning over vertically-integrated firms cross-subsidising advice fees to keep them artificially low.
This, the regulator solemnly reiterated, is prohibited under the RDR. Consumers must be presented with charges that take full account of the costs to the firm of providing the advice service, including those related to IT infrastructure costs and other ancillary business overheads.
The aims of this measure are undeniably laudable, being as they represent an attempt to prevent firms gaining a privileged intermediary position with clients from which to peddle their own inappropriate products.
Several firms that offer both products and advice services, such as AWD Chase de Vere and Mattioli Woods, even welcomed the proposals on this basis, with the former calling the FSA’s move to clamp down on this practice “sensible”.
I could not disagree more. Not only does this in my view represent the very antithesis of ‘sense’, it is in so many ways an affront to basic business principles that places unnecessarily limitations on financial services firms’ practices.
The simplistic dichotomy offered by the FSA in this area is one that would appear wildly disproportionate in any other sector.
For example, News International is not targeted by authorities for using its highly-profitable Sky broadcasting business to subsidise its increasingly unprofitable UK newspaper titles
Nor is there intervention from authorities over supermarket grocery store chains selling various products at a loss or close to cost price to bring customers into their shops in the hope that they will spend more liberally once ensconced within.