Do we still need the FCA?

I’m sure you are all wondering whether the heat has gone to my head with that headline. I can assure you it hasn’t! 

The costs of the FCA are burdensome and escalating and there’s still widespread financial shenanigans taking place.

I’ve therefore given some thought to regulations, the cost of advice and the desire to improve professional standards and the client experience. This has led me to question the need for us to even have the FCA.

We have many different bodies and organisations involved in the process of providing financial advice.

We currently have professional bodies such as the CII and CISI, plus we have the Financial Services Compensation Scheme, the Financial Ombudsman Service and then of course the Financial Conduct Authority. All of these contribute in some way to the overall standard of advice and the client outcome, but the main drivers are the individual companies, advisers, insurance providers, investment houses and the profession at large.

Much of the discussion around relieving some of the regulatory burden focuses on the cost and injustice of the FSCS, but I personally feel it’s the FCA that needs to be significantly altered. My reasoning behind this is based on my understanding of what each organisation does.

Professional Bodies 

The Professional bodies ensure anyone wishing to be an adviser needs to firstly undergo significant study and then continue to maintain and advance that knowledge through CPD. So the professional bodies such as the CII and CISI set a prerequisite criteria of knowledge and professional standards, along with a code of conduct, thus ensuring that a certain level of advisory standards are maintained. 

Financial Ombudsman Service 

We then have the Financial Ombudsman Service, who deals with dissatisfied and financially disadvantaged clients, ordering redress if they decide that the adviser has essentially provided a dis-service to their client, by mis-selling to them.

In many cases, the term mis-selling appears to be a softer description for fraud – If you take money from people by misrepresenting the facts it’s fraud, plain and simple. While the courts would have a hard time proving fraud and clients wouldn’t always wish to go this route, I think many advisers financial promoters are getting off lightly by the very existence of the FOS. On the other hand, I also understand that advisers are sometimes victim to spurious claims and many members of the public are using FOS for every possible small grievance and a backstop for any losses suffered.

While FOS isn’t perfect, it provides an essential client backstop in the event of poor advice. This is an important safety net for consumer protection. 

Financial Services Compensation Scheme 

We also have the FSCS who provide compensation to investors in the result of losses due to the provider or advisory firm becoming insolvent. They provide an important means of returning money to people who have lost out from bankrupt providers.

I understand the advice community’s frustration with how FSCS is funded, especially products that should never see the light of day and the very valid issue of good and honourable advisers bailing out the bad and unscrupulous ones. You really need to put yourself in the client’s shoes though. They have entrusted their money to an organisation, solely on the basis of a person persuading them to do so. A person who is promoting themselves to the client as someone who is trustworthy and well versed in financial matters leading the client to make the decision to invest. Is it really the client’s fault if something goes wrong and should they be the one who loses out? Or should it be the profession and industry responsible for the mess?

While it is clear that the FSCS requires some sensible limitations on what is and isn’t covered, we cannot allow the public to lose their life savings without redress. 

Financial Conduct Authority 

Finally we have the FCA. I expect the mere mention of the name causes some discontent at some level up and down the country. I’ve never met anybody who has said the FCA do a wonderful job and they’re thankful to have them. It certainly feels like each month a new report comes out filled with what can only be described as orders from those who have never provided any advice and therefore do not know the first thing about it. Its a system of box ticking and ass covering that has lead to increasing costs and distractions of time, without a noticeable improvement in client outcomes. In my view, the majority of improved client outcomes have derived from improvements in technology (facilitating an expansion of available investment choices, a reduction in fund charges and better access to research and reporting – for both the client and the adviser).

A possible alternative 

I’m personally uncomfortable with regulations by diktat. The idea that rules and regulations are imposed rather than freely debated makes me uncomfortable. I feel the remit for setting the standards for financial advice should be with the professional bodies, with members freely discussing and exchanging ideas on best practice. After all, surely those who are involved in the client advice process day in and day out will have far better ideas than those that do not.

Essentially, I believe developing advisory standards should be democratic, not a dictatorship. By removing the FCA from the equation, all advisory fees could also be reduced, resulting in a positive outcome for consumers as this cost saving could be passed on to them. It’s my belief that our progress and evolution as a profession rests in the free exchanging of ideas, views and innovations, not in reacting to whichever guideline is prescribed by the FCA (and then how that is interpreted by whichever compliance consultant or employee you happen to engage with).

By removing the reactionary adjustments we frequently make to new FCA ideas and guidelines, we could all proactively become involved in shaping the future of our profession. Presently, this is suppressed by the very existence of the FCA. Why would you invest considerable time and effort into devising how you should provide and explain your advice, when that work could be made redundant by the next FCA publication?

The costs of the FCA are also considerable and growing rapidly:

Some Challenges 

I do concede that there still remains far too many unscrupulous financial promoters using the title of advisers, financial planners or wealth managers etc., and removing the FCA could potentially leave the door open for more of this type of activity. However, my view is that all of this financial nonsense is going on under the watch of the FCA anyway, perhaps removing the FCA will force the public to be a lot more careful about who they trust with their life savings.

Perhaps removing the FCA entirely is going too far. Instead, we could think of ways to restructure and reduce it’s remit and therefore it’s budget, but improving it’s effectiveness at weeding out poor practice. 

The FCA needs a little less bureaucratic bark and a little more bite. 

Despite the ever increasing FCA budget, I expect all of you know of at least one example of something going on in financial services that shouldn’t be. Maybe it’s not the bodies and structures that need to change. I suppose the poor practices that are still happening is really a reflection of the people involved. It seems clear to me there are too many lacking honour, honesty, wisdom, courage, responsibility and determination to do the right thing, and I expect no amount of legislation is going to change that. I remain convinced that the FCA is far too bureaucratic, costly and isn’t protecting the public well enough – perhaps it’s simply an impossible remit. I feel the solution rests in all of us collectively sharing ideas and pushing for better standards. We can’t just leave it to a regulatory dictatorship and expect a positive outcome.