Educating the general public about finance is not the silver bullet to stopping scammers from succeeding.
When the Financial Services Compensation Scheme chief executive blamed the lack of financial nous in the UK as "the heart of the problem" relating to the rising compensation scheme levy, advisers rightly disagreed.
Better education is not the solution to ending bad financial outcomes.
Florence Nightingale first encouraged handwashing and the use of soap in the 1850s. More than 170 years later we are still having public health information notices, videos and adverts showing us how to clean our hands properly.
Education does nothing if nobody pays attention in class.
Similarly, it is not enough to throw taxpayer and industry money at widescale information exercises to tell the general public not to put their hard-earned cash with unregulated advisers, or issuing guidance suggesting it might not be a good idea to cash in your NHS pension early and put it into Bulgarian buy-to-let.
If financial regulation consists simply of warning people not to put their hand over a burning flame, but still providing all the compensatory salves when people get burned, then it is not really doing its job.
What is needed is a root-and-branch, wholesale reform of financial services. Do not tell people not to cash in their NHS pension and take out a mortgage in Bulgaria - stop them from doing it.
Enforce stricter penalties on the unregulated companies who facilitate these schemes. Hit their directors with heavy and severe personal fines, Securities and Exchange Commission style. Work with Interpol to ferret out the shadowy overseas players behind such scams.
Education does nothing if nobody pays attention in class.It is not illegal for Mrs Miggins to invest in teak plantations if she wants to. But why not give the regulator powers to make it so, or at least to do more to limit the channels by which money can leave UK pension pots and get lost in unregulated space?
Make it so that only approved, authorised, regulated and official (always via advice and not direct-to-consumer) routes are permissible.
Strangely enough, this is not already in place; only half-baked measures exist along these lines. More defence is needed.
Freedom is all very well, but if it enables people to fall off a cliff, then some railings need to be put up. Educational notices en route to the edge are not going to cut it.
simoney.kyriakou@ft.com
