15th April 2014

Garry Heath: Canary Wharf Ten Years On

It has been ten years since I visited the regulator’s Canary Wharf HQ. Last time I went to discuss the impact of TCF on the activities of bancassurers who were selling seriously overpriced life assurance to non-standard bank customers. I met a couple of women dressed in Islington grunge who had great difficulty in understanding the difference between a standard life and a non-standard one. Once these two Rita’s had been educated; it became clear that Treating Customers Fairly didn’t really apply to banks and if they were stiffing their clients; it wasn’t anything a self respecting FSA person would do anything about. Mumble, mumble swerve - thanks for coming!

Same building ten years on and thanks to being one of the speakers at Panacea’s January RDR conference, I am part of the team discussing both that conference and Panacea’s latest survey on the effects of the forthcoming removal of trail commission. To be fair to the current FCA team; we were greeted warmly by well informed people and a very business-like meeting ensued. We put our points and they were decently received.

So what are my after-meeting thoughts?

Firstly, how well served the IFA community is by Panacea. A free to use adviser community website and resource that makes surveying meaningful and is willing to create industry discussion through their ‘Bento’ email bulletins and its various meetings. In particular, it has become the area through which many directly authorised businesses can express their opinion. In many ways it is performing the functions of a trade association without being one. I will return to that theme in a minute.  

Secondly, I felt that we were filling a real void in the sector’s representation. In the meeting it was clear some of our contributions were fresh information to the FCA and that what may have initially been perceived as a chore of a meeting for them became somewhat more valuable as the meeting progressed. In some ways, I started to feel sorry for them. I wonder when they were last confronted by the clearly expressed reality that lies behind their ideas.

If the industry is to embark on healthy discussion and the regulator is to consult properly; there has to be an open exchange on the battlefield of ideas. This is more than the trading of platitudes or attempting to tinker at the margins. Each stakeholder must arrive with clear information, clearly expressed. Each stakeholder must have the right to instigate policy initiatives which cannot be the sole prerogative of the regulator.

Part of the process has to be meaningful push back if we are to avoid the regulators reversing themselves down policy cul-de-sacs like RDR. Without push back there is no discipline on the battlefield of ideas. The totally ridiculous becomes fact and the indefensible becomes acceptable. Par-boiled policies are launched by an over mighty regulator confident that it will not face a concerted challenge. This way leads to the abuse of power by an Orwellian super class.

This is where we are and it demonstrably not working for anyone; particularly the clients who are paying for a dysfunctional process which does not listen but treats them as cattle in social engineering experiment.

If we are to change the current system we must return to an interchange of ideas based on principles not short term expediency. Principles like value for money, openness, clarity, parliamentary oversight and the rule of law. Once we return to principle the industry can start representing itself from the position of strength and from the IFAs perspective as the agent of the client from the moral high ground. 

From a principled position you can ask questions like – “OK Mr Regulator let’s look at your RDR ideas - Please explain to the public how culling 25% of the adviser force and separating at least 5m clients from their adviser will improve their lot!” or “could you explain to my granny the difference between Independent and Restricted advice”. Such an approach might start to bring regulation back to real people and real issues.

Under New Labour, the FSA became an organ for social engineering attempting to create a perfect socialist market for financial services products. It was far more interested in its own ethnic diversity than protecting clients and avoided bringing in anyone with industry experience to “avoid having our thinking polluted” as one FSA officer told me. To be fair to the FCA, whilst much of what has happened appears to be a rebranding exercise, we are seeing some ex-industry people coming into the regulator – let’s hope for some pollution before they go native.

Also I sense the FCA’s increasing uneasiness about creating policy in a vacuum and whilst they inherited a pendulum solidly swung in their favour they realise it is going to swing back. When that happens they will not want to be exposed.

The world of “Group Think” – large government, the EU, the BBC and nothing moves unless a regulator says so is going to go – probably with the self-appointed political class that inspired it. Whether it’s UKIP in the UK, the Tea Party in the US or any number of similar group in Europe we are heading for a paradigm shift of power back to the individual.

Sants at the Treasury Select Committee will prove to be the turning point. MPs have neither forgotten or forgiven and whilst the current coalition will not be revisiting regulation in this Parliament; there will be legislation post 2015 if IFAs get back to lobbying their MPs.

So where does all this leave IFA representation? APFA presents itself as representing all Independent and Restricted advisers. The reality is that the vast majority of its membership and income comes from networks who are financially weak and whose existence is totally reliant on the whim of their provider owners. Are the commercial interests on Networks always aligned to DA IFAs? I don’t think so – quite the reverse.

I understand that APFA only has 100 of the 3,100 directly authorised UK IFA firms - a whole 3% of that group. At the January Panacea conference; I suggested that, with the demise of the Cardy initiative, IFAs should join APFA – not from any great enthusiasm for the organisation but on the basis that it was the only game in town.

Just after the conference I was told that APFA was having an “away day” and so I volunteered to attend and offer them my experience free of charge.  Given that IFAA had 75% of the DA advisers and APFA has 3% you might think should an offer might be welcomed. Not so. Thanks but no thanks – Pity!

So is APFA salvageable? – I doubt it.  IFAs are currently represented by an organisation that principally represents a dying commercial model. It denies itself access to many of the tactics that have worked in the past and doesn’t really want DA members. What happens when the network movement fails? IFAs will not have any voice. It is time to start planning for that eventuality.

So how should the IFA sector represent itself? Firstly we should recognise our weaknesses and strengths. Our major weakness is that the sector does not have the establishment contacts or the clout that banks and product providers have in terms of closing sites in particular cities. It cannot offer regulators, MPs or civil servants post retirement jobs. Pretending that AIFA/APFA will succeed by playing the establishment game is risible. The results speak for themselves.

We have to return to playing to our strength. The IFA sector is diverse and spread across nearly every constituency.  IFAs talk for a living, explaining quite complex concepts simply to clients. They are ideal creatures to canvass MPs in Parliament and in their surgeries.

When IFAA did its negotiating with the Treasury and with regulators; it did so from a position of strength with the active support of its members, their MPs, the consumer lobby and often the media. This consortium delivered a different form of representation in which we avoided special pleading by aligning ourselves with our clients. Whitehall and its vested interests hated it but so what – welcome to active democracy!

In 1999 when IFAA was attacked by the ABI and Patricia Hewitt; I had run 60 hour weeks for 10 years, driven 35,000 miles each year and I was getting tired and exhausted. Confronted by the combined Treasury and ABI; I decided that it was more important to have a united IFA sector under one body than for a sector to fight New Labour divided. In retrospect, it was the wrong decision not just for the IFAs but far more importantly for their clients. I handed the IFA sector to people who didn’t deserve to represent it – Something I have regretted every day since.

I should have gathered my troops and put them to the sword. Had I done so we might still have polarisation, an accountable regulator, a sensible ombudsman scheme and at least 30,000 more jobs in the Independent sector – Oh and at least 5m more clients with access to advice they could afford.

So where do we go next? Panacea is excellent position either to become a new body or at least sponsor the creation of one. It has already done more on the Trail Commission issue than anyone else – why not go the whole hog? OK Panacea’s original plan did not include being a trade association but things change. I have asked Derek and his Team to give it real thought.

Otherwise it is time to set up a new body.  If it can attract 75% of the DA businesses it would have a budget of £1.5m significantly more than APFA. It can be done with a bit of leadership a load of support and most importantly - it is time to do it.

Garry Heath

FSA/FCA, Regulation