Thegiconsultant’s Weblog
Blog of The GI Consultant – serving the Financial Services IndustryArchive for June, 2009
Just had to share this!
I have just been on the new PB brokers website and this opinion poll was the first thing I saw
FSA performance: Axa’s Phillipe Maso described the FSA’s performance as outstanding at the recent Biba conference. Is he: Absolutely correct About right Deluded
Anyone else think it’s hysterical or am I losing it?
FSA is puzzling me!
A few years ago I brought a ‘test’ case to the Financial Ombudsman Service concerning some very unfair treatment of a private motor client by a leading insurer. The following things were definitely NOT TCF (Treating Customers Fairly): they we capitalising on his being unable to place his business elsewhere without a different penalty, they moved the goal posts, they were ostensibly charging and extra 30% for a lower risk. The answer was that ‘the FSA did not get involved in the commercial decisions of insurers’ and it was up to insurers how they set their rates! The reason I bring this up now, is following reports that the FSA are telling PPI (Payment Protection Insurance) providers that they must not increase rates in the light of the increased risks in the current economic climate!
In a letter sent to market leaders and trade associations this week, the FSA said current moves to raise premiums were not in the best interests of customers and warned rises must be proportionate. An FSA spokesman said: “As the likelihood of unemployment-related claims increases, some insurers are responding by increasing premiums or reducing cover for existing policyholders. While it is natural for the industry to respond to fluctuations in risk, the recent changes in premium/cover raise concerns with unfair contract terms, disclosure and the FSA’s treating customers fairly principles”. “This is an area where insurers can expect the FSA to intervene to address poor consumer outcomes. The FSA is in contact with relevant firms and trade associations, and is seeking to reach agreement across the industry that will ensure MPPI customers are treated fairly.”
Investors are not bad people!
At a recent gathering I brought tidings of the proposed new national landlord register and the regulation of sale and rent back deals to a group of property investors. To say these things were not well received is understatement! Talking to those in the room who were at the coal face of letting it was apparent that the three-quarters majority of landlords who are individual investors are not evil exploiters, they are offended by the implication of the law makers that they need to be regulated and they all felt that the result would be unfavourable for consumers in the main. What can be seen is that large firms will be getting authorised, perhaps including many lenders, the offerings and service levels will become more expensive as they will have to satisfy the shareholders of these institutions rather than the relatively modest aims of the private investor. Those that operate in the shadows below the law will no doubt continue to do so, but the overwhelming majority of decent people who have the confidence to put up their money will use their funds elsewhere, leaving vulnerable consumers a much reduced choice about where to turn for help.
More information on property investment is available through the Property Investors Network, Link Below: Property InvestorsNetwork
No free lunch with an IFA
Tomorrow should see the RDR (Retail Distribution Review) morph into the RDIP (Retail Distribution Implementation Program). Adviser charging formerly know as customer agreed remuneration, will be a central issue and the one that most consumers will notice. This means that there will effectively be NO COMMISSION. The nearest thing to the old model wil be deferred fees where commission is offset. The ‘FREE’ advice offering will be dead and buried. Apparently the FSA are still re-writing it, this is for consultation and the final rules will be set out early in 2010 with full implementation by 2012.
So what are consumers going to make of it all? Will they finally understand the difference between a bank sales adviser and an independent financial adviser and will they be blinkered and take the option with no up front costs even if long term it means a lower standard of living in retirement? It’s human nature to save money in the here and now, this is going to be a tough PR cookie for advisers and it will also end the attractive passive income from past sales.
Thinking caps need putting on!
Seeing the sights
How often do we visit a new city and only see the inside of hotels, offices, conference centres or bars? Surely it isn’t just me? Luckily some of my friends shared their photographs of the sights of Belfast so I could imagine that I had been on the Eye and the open top bus tour. I would also like to thank Claire for arranging a liver saving clay pigeon shooting activity and myself for resisting the urge to tour the city in the dark in search of beer. The morning saw our group struggling with two cases of Tennants that had cost £70! For my next city break I shall be taking a camera and requesting a tour guide. Looking for brokerages in interesting cities that need help with compliance please!!
Great money making scheme
I recently passed through Belfast International Airport. This was the return trip and my travelling companion and I had carefully packed our toiletries (diddy ones) in tie freezer bags in accordance with web instructions. Our passage through security was paused and our toiletries were ‘detained’ much to our surprise. We were left chuntering for a while and then we were told by a lovely Irishman that our bags were unacceptable, that bags had to have those plastic seals on them (those ones that you can never line up or shut properly) and that happily we could buy some from a machine in the security area! We duly bought some and we shared them with the lady behind us whose see though zippered bag had also been deemed non-compliant. The smooth talking Irishman then shoved our stuff in them and handed them back unsealed and un-scrutenised.
Now making plans to camp outside the local airport with bags – 50p for three anyone? Oh and supermarkets, please can you fill this gap in the market?
Capital Adequacy… small is beautiful
Having been involved with FSA firms for several years, I have seen the odd balance sheet crisis where accountants have written things down and make tax efficient moves that have dented a firm’s capital resource. So a perfectly solvent brokerage falls below the minimum threshold conditions.
Now brokerages – financial advisers too – are businesses that generally either don’t hold client assets or they keep them separately (safely), they are not known for failing and if they do fail they don’t cause that much damage to anyone else.
The West Bromwich building society is the latest financial institution to be reported as struggling. The rumours of problems pervade all of retail banking. One minute though mutual building societies were fine – their rules did suggest that they would not lend out more than they took in as deposits. Sadly the rules didn’t preclude them from investing in dodgy debt it seems.
As we have seen, failure of such firms causes detriment across our society and affects us all badly. Tax payer money is at risk.
Why do small adviser firms have to have these disporportionate balance sheet requirements (the FSA want to double the requirement for small IFAs to £20,000) when large firms and those that keep peoples money, have a major influence on the health of our economy and are responsible for many jobs manage to get away with balance sheets that are precarious to say the least!
It is clear that the FSA can easily regulate small firms and impose rules including capital adequacy, however, it is blatantly not possible to enforce and monitor such rules for larger more complex operations. If a small mutual building society cannot be sorted out, what chance have they with gargantuan banking institutions? Small is not only beautiful, it’s manageable, allows choice and spreads risk.
Regulation came from the EU?
A question that arises following my experiences in Greece! I was able to take out a mortgage without one single warning about re-possession, life assurance with no disclosure warning, key features or even a policy and paid fees that were not debited until three months later for something described succinctly in a couple of Greek words. Add to that I get no bank statements and to find out how much was in my account I had to go to Greece, from Leeds! Happily I was able to get a ‘log on’ to internet banking while I was there. Armed with about 18 forms of identification I went into the bank; they set me up and did not even ask to see my passport. Thus I wasted hundreds of pounds and three days as I could have just sent anyone! I do not see the Greeks having a ‘Treating Customers Fairly’ policy, plan, gap analysis and management information stash!
So, we blame the EU for FSA regulation, are we sure? Greece is in the EU.
Misleading rules – set rates for illustrations
Writing about disclosure at standardised rates of return 0f 8.5% and 13% between 1988 and 1995 the regulator says: ” In fact the previous regulations appear to qualify as a form of consumer deception.” At last, someone sees some sense!
I have always said these prescribed illustrations are meaningless and baffling, clients have asked why use them then and of course the answer – because the regulations say we must. This sort of thing has led to consumers feeling also that the regulations are meaningless and could well be why they don’t bother reading initial disclosure documents, suitability letters, risk warnings etc.
Actually, it is impossible to protect consumers from themselves. If they trust their adviser they will just want the adviser to get on with it. If they don’t then they won’t use the adviser – there are plenty of them to choose from! In actual fact, many retailers who enjoy the protection of caveat emptor, are in a far more monopolistic position and yet are not facing regulatory attention on the scale of FSA authorisation.
They should bring out some new set rates for illustrations now that include -25% if they must do this at all! This more accurately reflects what has happened lately. Certainly we would know which customers had read them then. See endowment red letters – all the other letters and statements are filed or binned, the only SIT UP ones are those with bad news. I have just had such a letter, after many GREEN ones. Now of course there is only a year to go and not a lot I can do about it. This is naturally compliant and within the rules too, just as misleading people about returns was.
Gordon Brown
Whatever you may think of him he was certainly given a ‘hospital pass’ when he succeeded Tony. I wonder who is running the country at the moment. I would really like to see parliament looking at the laws they are passing, the fact that they seem to struggle with expenses forms is a bit worrying too.
For example, there are regulations afoot for the Sale and Rent Back market. This is where a struggling home-owner can avoid losing the family home by selling to a landlord before being re-possessed. In many ways it’s a great service, unfortunately some have abused the vulnerable. Regulation may well be required, but it seems that the FSA are dumping the mortgage rules onto this sector and that individual property investors are going to be ‘providers’ which is like comparing them with ‘lenders’ and that pure advisers or brokers in this market (of which there appear to be none) have been give a regime akin to that applicable to mortgage brokers. This is crazy, the providers who are treating customers fairly are more likely to be individuals than firms and yet it is probably only firms doing this who will be able to afford the regulatory onslaught. It just seems very ill thought through to me. No surprise when the rule makers have so much else on their minds eh?
I also think the dangerous dog law is flawed. As the RSPCA vet so admirably put it: the problem is at the other end of the lead!
Anyone else have a problems with any other recent legislation?
