FCA and Treasury going soft on banks

So when I heard the acting chief executive of the Financial Conduct Authority recently suggesting that commission could play a part in sales I thought I’d made a mistake.

Perhaps I had inadvertently downloaded an old programme from April 1 last year. Maybe it was a discussion from a couple of years ago.

But no. Here was Tracey McDermott saying: “I wouldn’t rule out that there may be some element of commission, but we are not going to reverse the Retail Distribution Review.”

Well, at least there is some relief in the second part of that statement.

In the same interview Ms McDermott denied that the FCA was going soft on the banks. Yet the very admission that the FCA is considering an element of commission suggests the opposite.

Despite denials and statements to the contrary it is very difficult not to believe that this complete volte face is being engineered from within the Treasury.

George Osborne wants us to love the banks in spite of the damage inflicted on our lives and savings by their reckless behaviour in the past.

“George Osborne wants us to love the banks in spite of the damage they have inflicted on our lives and savings” Tony Hazell

Estimates of the cost of the banking crisis vary wildly. Let us just say they are immense, and then digest this comment on the subject from a National Audit Office report: “The income generated by fees and interest is less than would be expected from a normal market investment and has not compensated the taxpayer for the degree of risk accepted by taxpayers in providing the support.”

So basically we taxpayers were forced to take on an exceedingly risky investment with insufficient returns.

I accept that there comes a time when we must move on. We cannot keep harping back to old mistakes. But that can only be the case when the banking industry and the regulators accept that the culture within banks was toxic, major mistakes were made, and lessons must be learned and acted upon.

The recent decision to scrap a review into behaviour within banks coupled with this suggestion that some form of commission could be considered suggests that far from yearning for change the Treasury and the banks wish to sweep contentious issues under the carpet.

Commission was at the heart of nearly every mis-selling scandal from precipice bonds to endowments and from personal pensions to PPI.

For a regulator to suggest that it could return in any form suggests that either they have learned nothing from the past 25 years or they are being placed under unacceptable pressure by a government desperate to appease the banks.

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Some advisers don’t get it

While we are on the subject of commission, I have been following the comments and debate around the subject on various financial advisers’ web boards.

I was particularly taken aback by some commenters’ inability to distinguish between fees and commission.

For example, one adviser says: “I really don’t see the difference between a fee or a commission when you look at the basic transaction in that money belonging to A passes to B in remuneration for work B has completed on behalf of A.”

Let me explain as simply as I can. A fee is a payment for work you undertake on behalf of your client. A commission is a payment for products you sell on behalf of an insurer or investment firm.

Do you see the difference now? Advising a client does not necessarily entail selling them something, and it could entail advising them to put their money into a product that does not provide a kickback.

Now there is a concept we could try explaining to the banks.

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Another terrible Treasury wheeze

In just two a half months’ time the pensions lifetime allowance will be slashed to £1m.

This cut is clearly designed by Treasury mandarins who benefit from and only understand final salary pensions.

The impact on those in defined contribution schemes will be far-reaching, both slashing their maximum levels of pension income and punishing good investment strategies.

While someone in a final salary scheme could benefit from a £50,000 a year index-linked pension without facing a tax charge, those in defined contribution schemes would struggle to get £35,000 on the same terms from a £1m pot.

Pensions Minister Dr Ros Altmann has made it clear she is against this cut, which sends out all the wrong signals to investors. If she has any influence on pension policy she should be fighting to get it reversed in March’s Budget.