Your IndustryMay 31 2013

Secret IFA: FCA making all the right noises

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It’s not all bad you know. In fact I’ve been feeling unusually positive about a couple of things recently. There has been some welcome straight talking from Martin Wheatley, chief executive of the Financial Conduct Authority (FCA) – more about that in a moment.

I’ve also been reading about an upswing in people looking for advice. This is despite the doomsayers predicting a downturn because of the RDR.

Conversations among my peers suggest more people are looking for advice since RDR began. I cannot say I’m surprised; the issue about fees versus commission has been a bigger problem for advisers than for clients. Still, it’s nice to hear the outlook is better than advisers might have thought.

And Martin Wheatley hasn’t been wasting any time. Within days of the FCA taking responsibility for regulation he was making headlines. He said structured products “had often been mind-bogglingly complicated financial gambles” and “are almost like spread bets on steroids”. I agree.

Is this a warning shot across the bows of the structured product manufacturers? It’s a long way short of product intervention, but is a sign that the regulator is prepared to be more vocal about what it considers to be problem areas.

Then the FCA issued warnings about the looming problem of interest-only mortgages. Wheatley has previously labelled them as “ticking time-bombs”, and the regulator has asked lenders to contact all borrowers with an interest-only mortgage about their plans to repay the capital.

To my mind the FCA is making all the right noises. These are clear and unambiguous messages, and are being picked up widely by the press. Imagine if the previous regulator had spent less time telling us to be afraid, and more time telling the public just to be wary of certain products. I think it would have cost them (and us) a lot less.

And before anyone starts complaining, this isn’t about banning products (yet) or restricting choice. It’s about pointing out to people that things are not always what they seem, and there’s no free lunch.

Speaking of which, providers have been fueling the free lunch myth for decades, and it’s created problems that RDR is fixing. All the nonsense about clients investing money into insurance bonds, and through ‘extra allocation’ rates, thinking they’ve got ‘free money’ invested. If only the regulator had stamped out this practice as soon as it started.

But I’m reminded that for some people there was such a thing as a free lunch – those advisers who were ‘milking’ a few stupid product providers. The providers’ new business figures looked good, but profits were lousy.