Clients would like regulator to approve products – poll

A survey of 44 clients by Carl Melvin, director of Renfrewshire-based Affluent Financial Planning, showed that 95 per cent felt it was essential or important that financial products were approved by the regulator before being sold’. It also found that 90 per cent would like a ‘traffic light system’ to indicate the riskiness of products.

Martin Wheatley, chief executive of the FCA, has ruled out pre-approval responsibilities. He said it would be “near-impossible” and innovation and creation in the sector would be stifled.

The FCA’s early intervention powers allow it to remove products from the market if it suspects consumer detriment may occur. However this is not the same as a wholesale pre-approval process of all products that come on to the market.

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The research also showed that the FCA’s preferred approaches to beefing up regulation, such as abolishing commission as part of RDR, had done little to change the public’s poor perception of financial services. Only 27 per cent said it was essential to prevent future mis-selling and 30 per cent suggested that requiring financial firms to hold a higher level of regulatory capital was not important .

The results suggested there was a strong appetite for harsher penalties for mis-selling with 89 per cent of respondents concerned that the government and the FCA had failed to punish culprits in recent mis-selling scandals.

The study collated various academic views on regulation that suggested regulation had been misdirected by focusing on capital adequacy, qualifications and commission rather than addressing the real reasons for customer dissatisfaction with the financial sector.

Mr Melvin said the research could not prove any correlation between financial illiteracy and consumer mistrust of financial providers. He added: “Lack of capacity, poor consumer understanding of the need for financial planning and the exigency to embrace personal responsibility for our own financial futures were all considered more significant contributors.”

The research was published by Mr Melvin in a 90-page report submitted for the award of master of financial planning and business management at the Manchester Metropolitan University Business School.

Regulator’s view

A spokesman for the FCA said: “The FCA has no current plans to introduce pre-approval of all products as a matter of course. When we last consulted on this issue the majority of respondents agreed with this approach.”

Adviser comment:

Jonathan Fry, director of London-based wealth manager Jonathan Fry, said: “I can see the attraction in copying the approach adopted by the medical industry where it is necessary to look at what will be prescribed by doctors, but we have to get real here. The size of the financial services market in the UK means it would not be viable, it would slow down development and definitely stifle innovation.”