RegulationDec 19 2014

Five key themes from this week’s news

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As the festive season nears we’ve been treated to a few early presents in the form of major reports to digest this week - but for the Financial Conduct Authority it must a felt a bit like the Grinch had stolen Christmas.

1. One rule for the FCA, one rule for you.

This week Clive Adamson appeared in front of the Treasury Committee and took quite a hammering. As I said last week, I feel very sorry for Mr Adamson; he really did take one for the team.

Andrew Tyrie, committee chairman, told Mr Adamson that it appears at times to be a case of one rule for the regulator and one for the firms it regulates.

The author of a highly critical report last week, Simon Davis, previously told Mr Tyrie that there should be collective criticism and that the insurance life review debacle was not any one person’s fault. It seems Mr Adamson would agree.

As Mr Tyrie said, it is ironic that as the FCA is bringing in a senior management regime for banking whereby an individual has to take responsibility for a firm’s failings, when this does not apply to the watchdog itself.

With typically poetic timing, this session was followed just a day later by the FCA being forced to apologise to a financial advisory firm and make a goodwill payment of £1,000 by the Complaints Commissioner, following “serious failings” in an enforcement investigation.

Among the heavy handed tactics that saw the adviser left unauthorised for several years, was an unannounced visit from the regulator at which one investigator suggested varying permissions and glibly remarked “there was always Tescos to work for”.

2. What advice gap?

Both the regulator and the government are trying to address the so-called ‘advice gap’, according to Keith Richards, Personal Finance Society chief executive.

However, according to a report published by Towers Watson on behalf of the FCA, we don’t actually have an advice gap. In fact we have too many advisers; a surplus of around 5,000 individuals.

Currently there are more than 31,000 individuals with a statement of professional standing, according to FCA figures. This is probably the only reliable figure is the whole report.

Figures for advice demand were calculated based on modelling of 10 defined consumer segments identified by the FCA and intermediated sales data obtained from the Association of British Insurers and the Investment Management Association.

Several assumptions were made, including in relation to the amount of time advisers had for giving advice (60 per cent, with the remaining 40 per cent dedicated to administration and marketing), as well as in relation to the time needed to provide ‘transactional’ and ‘holistic’ advice.

I’m not sure anyone is convinced.

3. RDR hailed, but labels could be ditched.

Another report - there were four in a single day on the legacy of the RDR - was extremely positive about the overhaul of the adviser sector, though it said there was yet no evidence that consumers are better off.

Two senior FCA executives dismissed suggestions the RDR reforms may not have yet translated into better outcomes for consumers, saying its review highlighted key improvements such as removal of bias and professionalism that will benefit clients in the long run.

The regulator did, though, admit something that the industry has known since January 2013: the new independent and restricted definitions are ridiculous labels that consumers do not understand. It stated there will be a consultation on the terms and that they may even be ditched altogether in favour of a more qualitative approach looking at how services are described to consumers.

I’ve got an idea, how about tied and independent financial advisers. Too complicated?

4. Pension liberation is going to be a key 2015 theme.

The first pension liberation decision that is with the Pensions Ombudsman was published this week. It was not one of the key ones the industry is waiting for, but it was interesting none the less and has been described as a ‘landmark’ by some.

It upheld a complaint against a pension liberation firm for failing to comply with a transfer request. It’s all very empowering, but the fly in the ointment is that it probably cannot find the money and the claimant may need to take legal action to recover his £350,000.

I feel very sorry for Mr X - and I despair at the lack of knowledge that saw him transfer his fund from a secure NHS pension scheme.

A code which will delineate best practice on pension transfer due diligence and is aimed at tackling pension liberation has been delayed from December until January because its final elements are still under review.

Given the above and the likelihood this will be more prevalent in the wake of the new freedoms, the sooner this is published the better.

5. Small legacy pots have extortionate fees.

This week, the Independent Project Board published its review of charges. It found that up to 40 per cent of legacy money purchase pension schemes are poor value for money, as they continue to apply charges in excess of 1 per cent.

It’s the smaller pots that really are being screwed however. The report found that £900m of assets under management (out of a total £67.5bn) have charges above 3 per cent. Of this figure, around £700m is held by savers with pots of less than £10,000.

Over 90 per cent is held by savers that are paid-up and have stopped contributing. But what about those that haven’t? What options have they got?

donia.o’loughlin@ft.com