Written by Kevin Okell on Monday 4 April 2016
In case you missed it, I recently wrote a fairly damning assessment of the FAMR report for Professional Adviser - you can read it here if you like. Stinging critiques are all very well but it’s a fair challenge to ask what I would have proposed instead. Here’s my answer.
Very simply, we have to make it as easy to invest money as it is to spend it. Take the Lamborghini of Pensions Freedom fame. It would be perfectly possible for an enterprising sports car dealer to buy a list of names ordered by wealth and to target anyone with £150k to spare with some glossy brochures describing the latest Huracan. Those brochures would no doubt paint a glamorous picture of breakfasts in Monaco, lunch in Cannes and sunset over the Pyrenees with no mention of astronomic running costs or the practical challenge of parking it.
No matter that in Mrs. Miggins’ case the £150k represents her lifetime pension savings, if she is sufficiently seduced by the images of a jet-set lifestyle, she can quite happily sign on the dotted line, hand over the cash and drive out of the showroom the same day. No checks on whether she can afford the ongoing running costs, whether a Huracan is suitable for her actual motoring habits or whether it’s really appropriate to blow everything she had on a 600BHP supercar.
OK so it’s an absurd example; there are enough oil barons queuing up to buy automotive bling to mean that Lamborghinis don’t actually get bought by the likes of Mrs. Miggins. But let’s take some less extreme lifestyle purchases. Airport departures are full of alluring images of sensuous curves and chiselled torsos draped around a variety of aspirational merchandise from enormous Dior perfume bottles to Calvin Klein underwear. Gucci handbags and Burberry scarves hang from scowling supermodels on the steps of some Scottish castle and granite-jawed marines gaze sternly at private jets in their Armani suits.
Let’s be honest, purchasing any of these “designer” products will not actually get you any closer to the lifestyle on show. You are being sold to by an advertising industry which calculates, by virtue of your presence in International Departures, that you are potentially susceptible to this type of imagery. The advertisers are getting smarter too. They have moved beyond geographic targeting of billboards based on demographics to personalised digital content based on your unique online footprint. Those spooky moments when banner ads seem to pop up just when you need them are becoming increasingly common and the ads themselves are starting to be personalised based on your interactions. The technology already exists to infer your personality profile from facebook activity and it’s only a matter of time before we start to see personalised product placement in the content we view as we move closer to a Minority Report style future! In short, the processing power and sophistication being brought to bear on persuading us to part with our cash is quite astonishing.
So what regulation is there to protect the poor consumer from this barrage of subtle persuasion? Well, there’s the Advertising Standards Authority with its code of practice but no statutory powers of enforcement. Those airport departure adverts suggest that the bar for “true, fair and not misleading” in the retail sector is somewhat lower than we are used to in Financial Services. Meanwhile consumer products themselves are generally pretty well regulated for safety and performance. That Lamborghini really will do 200 mph and the airbags will go off if you hit something. The Dior perfume may not give you a 6-pack but it shouldn’t burn your skin off either. Beyond that though, you’re on your own – caveat emptor and all that.
Meanwhile, on the safe, sensible, invest your money for the future side of the fence things are a bit different. I just read a tweet from Scalable Capital about their new online service where they had to use 20% of the available characters to warn that your capital is at risk. You wouldn’t see that in a Lamborghini tweet. Seriously, is it any wonder we have a savings gap when the makers of luxury goods can bring an arsenal of technology to bear to persuade us to spend our hard-earned cash whilst anyone suggesting you invest it has to worry about disclosure, suitability, appropriateness and wet signatures. It’s just no contest.
So, what would I have done to level the playing field if I’d been writing the FAMR report? In my view, it should have been much simpler and much more radical with just 4 key actions for the regulator:
- Finish the job RDR started and ban all flows of money down the distribution chain to remove provider bias from the advice process
- Establish an NCAP-style rating system for products to ensure they are safe for mass market consumption – and accept that investment comes with some risk but is better than not investing at all
- Review and approve (or not) automated advice algorithms to give consumers the confidence
- Stop regulating the advice process and tear up COBS.
Then you might see some genuine innovation.