Written by Adam Jones, Guest Blogger on Thursday 27 November 2014
That ‘dirty’ word
We need to accept that advice isn’t a dirty word any more. My last blog talked about refining decisions based on what we know about the client and how this is generally a very useful thing to do. I would agree that we are advising them as part of this, but I would argue that categorising this as regulated financial advice is misguided and restrictive.
I have talked before about how regulation itself often seems to be focused on the wrong principle. We all too often regulate the process and not the outcome. Look through the regulation around advice and you will see clear step by step guides on how to work through the ‘advice process’, but does it really matter? Is the important aspect not that the client is given something appropriate based on who they are and what they have? Certainly, this is referenced as well, but I can’t help but think the only important thing about the process of getting there is that the customer is protected and happy with the experience.
A far more useful approach would be to assess product suitability, based on what we know about the client. Instead of asking providers and advisers to risk non-long stopped litigation for a product that felt appropriate at the time, would it be too much to ask for FCA vetting of products? For the regulator to assess the known data on the product, and make a call as to whether it is suitable or not for different types of investor?
The FCA discussion paper - DP11/1 discussed this idea of product intervention and seemed to support the idea of shifting of regulatory intervention forward in the value chain; back to the factory, if you will. Altus Consultant, Chris McCullam discussed this concept in a previous blog – Blue Steel or Magnum - but on a general level, regulation before a product hits the market has to be a sensible approach.
It works in other industries. Pharmaceuticals and car manufacturing rely on the regulation and suitability of products being assessed and sanctioned before they are unleashed on the public. Perhaps we should take a leaf out of their books. That way, if a product is deemed as suitable we could let the provider do everything they can to help a client understand how the product works and what it means for them, without fear of issues down the line.
And yes, I would also like the moon on a stick, if that’s OK.