Balancing long-stop demands with consumer protection
This is a contentious issue - for once I have to admit to being on the fence and open to persuasion.
The battle to have a long-stop introduced for financial advisers was raised in the House of Lords last week by Tory peer Lord Flight.
It is a contentious issue with advisers feeling they should benefit from one and many consumer voices opposing it. For once I have to admit to being on the fence and open to persuasion.
There is the possibility of a review into the issue in 2015, but many thought it should have been part and parcel of the retail distribution review.
With lobbying set around a 15-year long-stop, the argument seems to be that the professions benefit from long-stops so why should not financial advisers?
Well, let us look at qualifications for a start.
Lawyers and accountants must go through far more rigorous examinations to practice than financial advisers have to date and will do in the future.
They also have long-standing professional bodies governing their ethics.
But, like financial advisers, they can be negligent.
The government also operates convenient long-stops. If HM Revenue & Customs makes a hash of your income tax you have four years to claim back the tax – a limit that was cut in the 2008 Budget.
So why should financial advisers be any different?
Well, for a start there is the nature of good advice, which should be an ongoing thing. As has already been pointed out, where does any long-stop start – when the advice is first given or when any future advice is given on that aspect?
Where does any long-stop start – when the advice is first given or when any future advice is given on that aspect?
In this respect a long-stop would appear to discourage advisers from maintaining full ongoing relationship with their client.
When we use lawyers or accountants it tends to be for things of a one-off nature, though these may have long-term consequences.
The crux of the problem with financial advice is that when someone takes a pension or life insurance they may not be aware of the consequences of poor advice for many years.
However the sort of bad advice that throws up long-term problems should be far less frequent under RDR.
Hopefully we will not see the likes of another endowment selling frenzy, people being transferred out of final salary pensions, young nurses flogged whole of life insurance or pensioners put into high-risk long-term investments.
I suspect that rather than wholesale investment mis-selling we are likely to see isolated incidents.
The basic arguments can be ground down to this:
* On the other hand a good financial adviser should not go into retirement worried that advice he or she gave will come back to bite them in 30 years when times and opinions have changed.
* But equally investors who have faithfully followed advice and saved through their working lives should not suddenly find they have no comeback for bad advice that only becomes apparent many years later.