FCA’s new unit should allow advisers to sleep more soundly

There would be lower bills from the various regulatory bodies, the sector-wide reputation of advisers would be much better, and many firms that have since given up the ghost might still be in business.

It isn’t possible to change the past, but perhaps the future is a little brighter. At the very least, investment advisers should be thankful that the regulator has set up a 15-strong retail fund supervision unit.

Of course, there is an argument to say that retail financial services is already tightly regulated and another layer of bureaucracy is the last thing that is needed. But this columnist, after years of watching things go awry on the radical fringes of fund management, believes this sort of reorganisation and focus is exactly what is needed.

It may not receive such a wholehearted welcome from fund managers themselves, and yet, if we could minimise the number and nature of disasters with funds, then we could give retail fund management a much-needed reputational boost, even if the miscreant fund operations tend not to be IMA members.

For those advisers who remain doubtful, I would suggest they consider a little bit of history. First, the FSA did indeed investigate some failings at Keydata early on, although this only involved their Isa marketing literature. Hopefully with a bespoke division, alarm bells would ring at early stages like these, precipitating further work and investigations into the broader structure of a firm and its funds.

And advisers who hear fund managers complain about the scrutiny should also consider just what happens when things go wrong

With Arch Cru, the potential lack of liquidity was questioned by Hargreaves Lansdown’s Mark Dampier in the national newspapers, while compliance consultant Phil Billingham also questioned just how suitable such funds could be for a client’s portfolio. Such warnings would surely have seen the funds examined in more detail if such a unit had existed. Indeed, it was incredible that the FSA let things get so far.

And advisers who hear fund managers complain about the scrutiny should also consider just what happens when things go wrong. The firms concerned almost invariably point the finger at advisers, no matter how reckless they may have been with clients’ and investors’ money.

The implication is almost always: ‘It’s not what we did, it’s those advisers whose client recommendations were unsuitable.’

Whether EEA Life Settlements was reckless may be up for debate. What is undisputed is that the firm has told investors it may be appropriate to consider claims against their IFAs.

Of course measuring the new unit’s success may be difficult on a year-by-year basis, but if, in five years’ time, the retail market has not experienced a high-profile failure or certainly one that impacts on clients’ money, it would surely signal that things have gotten much better.

It may not be able to police the ‘wilder west’ of financial services, however the new unit should allow advisers – including those who would never touch an esoteric fund with the proverbial barge pole – a better night’s sleep in coming years.

John Lappin blogs on industry issues at www.themoneydebate.co.uk