4 Mar 2013
For those of you familiar with the punk genre, the lyrics of Ian Dury can throw up some interesting inspiration.
Having recently attended one of the excellent Capita ‘Synaptic Modeller’ road shows, I was most impressed with the giant leaps that technology has made to assist financial advisers in doing an even better job for their clients.
The key message from Capita is that “Modeller is unique in its ability to enable users to configure all the key elements in the investment planning process and define the specific criteria defined by your firm's Investment Management Committee”.
But behind this great innovation can lurk the possibility of considerable adviser danger.
Much has been written over the years about the fact-find bedrock of “attitude to risk”.
This focus is now in transition, morphing toward capacity for loss (CFL) and it is clear, fresh from attending this road-show, that the consumer redress possibilities that a failure to consider attitude to risk would throw up, going forward, has now very much changed to one of a “capacity for loss”.
If advisers do not chant the same CFL mantra, from what I see, it will all end in retro-regulatory interpretation tears, and, an ocean of consumer redress for advisers to drown in.
This is partly because in retro regulatory world, consumer detriment can often be attributed, increasingly and alarmingly wrongly, and with some regulatory ease to somebody’s/ anybody’s actions, errors or omissions and the result is a potential FOS/FSCS payout, all with the benefit of hindsight.
But unlike a regulator, hindsight is not a detriment metric that can be integrated into any software calculation functionality.
In a recent video interview for FTAdviser, Simon Morris from regulatory legal experts CMS Cameron McKenna, waxed lyrical about UK regulation, the lack of regulatory accountability and the ability for regulators to do what they want without needing to reference parliament for approval, or even as I have often noted, give a cursory regard to the Regulators Code.
What we are seeing in regulation today is another manifestation of “elf and safety” madness, but in this case with no consideration attached to cost or the impact it has upon firms just trying to do a decent job, looking after their client’s best interests and earning an honest living.
This lack of regulatory accountability impacts the consumer as the higher regulatory costs of paying for failures are simply passed back to them to pay by all involved in the advice process.
In 2013, regulation is it would seem, focused on making sure that consumers never, ever, lose out.
Mr. Morris said “it would be possible for an adviser to thrive but given the challenges of the RDR and the way in which the regulators view “suitability” then the advisory community will be hit by the perfect storm of stricter interpretation of the rules, explaining adviser charging and a triple-dip recession”.
He warned, “it is either change and comply, or get a new job.”
Donald Rumsfeld could have been talking about regulation, not terrorism when he said, “there are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know”.
In financial services regulation, the problem with technology is that it can only deal with what is known. And with advisers, as with so many other industries and professions today, in becoming more reliant on technology what do we do if it all goes “Pete Tong”?
For those of a certain age, like me, map reading was a skill developed in an age when distance location finding was depenedent upon a Michelin type map, and sometimes topped up with an Ordnance Survey micro map. I doubt if many born in more recent decades would know too much about this, relying on in car ‘SatNavs’ or combinations of Google Maps and Streetview.
All very well with an internet signal, printer and post code. But if none are available what happens. And the same questions should be asked of financial software today.
But I digress a little.
Regulation today, if it were a game, should be viewed as you, a firm, playing an online game of chess with the regulations being the board and the FSA/FCA being your opponent.
But while you move your pieces on the software ‘chequer board’, the regulator is playing on a different 3 dimensional version of the game using different software and in a different continuum of cyber space and time. The intention being not to make sure regulations are clear and easy to understand, rather to make them as complicated as possible.
A firms’ regulatory failure can then be easily based, if public outcry, regulatory face saving or political opinion warrants it, on what will see a positive outcome for the regulator, politicians and even the consumer, regardless of the advisory firm following all the rules and the advice processes to the letter.
This is because in regulatory land the existence of a consumer miss-buying, possibly hindsight induced by having changed circumstances, aims and aspirations or being wise with the benefit of that same hindsight simply does not compute.
It may be a laudable ideal but it is neither fair nor reasonable that any industry or profession should be placed in a position by which it is judged upon what it did then, based upon what it should do now with the end result creating a form “Nanny state” protecting consumers from bad decision they may have made themselves.
Consumers must absolutely be afforded protection, but this should in the technologically advanced times we live in be by way of ensuring the products and investments, exotic or vanilla, that they ‘consume’ are fit for a clearly defined and understood purpose. And that should be a regulators responsibility and definately not an advisers or a ‘manufacturer’.
Regulation of adviser firms in the way we now see has little purpose these days, if history is anything to go by.
Scandals, product failures and rip off’s happened despite all the perceived good efforts (now seen as the failures) of previous regulators such as NASDIM, FIMBRA, PIA and the FSA to prevent them. And advisers along with the consumer pay for it, not them.
Perhaps consumers would be better protected with simpler, straightforward regulation and products, and importantly a consumer financial education programme starting with basic numeracy and literacy skills in schools.
With the FCA, the scandals, scams and rip off’s will continue, they will just be a little more sophisticated, take longer to expose, will be more costly, with fewer left to pick up the tab and will be driven by technology.
In fact, rather than regulation, perhaps financial services should be nationalised, prescriptive, non innovative and slowly reactive to change. That way nobody loses out and everybody’s capacity for loss is catered for by way of possibility of loss removal. The vehicle exists, NSANDI.
Regulation has turned into one of today’s few successful growth industries. It gives it’s workers unsackable career opportunities based upon civil service lines where jobs are not lost for failure, with no need to justify it’s existence, with no responsibility toward the Parliament that gave it life or indeed anybody.
It needs huge revenue streams to create a real life bureaucratic version of ‘Mad Max’s Thunderdome’ whilst paying what many may see as inflated salaries to the army of accountants, lawyers and other regulatory jobsworths, to support generous pension schemes, to provide health and many other employee benefits all of which many consumers and advisers could only dream of.
So, as we now know from Ian Dury’s lyrics, “there ain't half been some clever bastards”, but in our industry most of them in regulation are there with the benefit of hindsight and not vision and even with that they cannot get it right.