Written by Chris McCullam on Thursday 10 April 2014
There have been a few news items these last few weeks where the idea of taking responsibility for ones actions has been a recurrent theme. All have been of a regulatory nature about what you can do with your money but have been pointing in opposite directions.
One came from the budget with the announcement that at pension crystallization an individual no longer has to annuitize; they can take the cash to do with what they will, bringing even more flexibility to retirement and making it clear there is demand for a clearer, more simplified and cost effective way of helping customers access retirement income. Some of this message was lost amongst headlines and bi-lines about buy-to-let houses, yachts and Lamborghinis but it follows a principle of individuals choosing what is best for them, very much caveat emptor.
Contrasting with this was another news item published shortly after the launch of our white paper on D2C platforms and featuring one of the topics in the paper; the notion of ‘copy trading’ other more experienced investors’ transactions. The FCA doesn’t like the sound of this and has been busy issuing clarifications to suggest that it is a form of discretionary portfolio management requiring appropriate permissions, presumably the same permissions that a platform has if they offer model portfolios built by the more typical DFM as part of the platform proposition. In a similar vein, there has been increased regulatory scrutiny of select lists, like HL’s Wealth 150, and suggestions that this might be advice to an investor to choose particular funds as there is an implicit recommendation by virtue of being in the list. It feels like that at the accumulation stage a provider has to go out of their way to make sure that the buying decision is deemed appropriate to avoid regulatory censure; very much caveat venditor.
To be fair, the FCA does have its hands tied to some extent by the principles and operational objectives set down by the Financial Services Act (2012). But it feels like their operational objective to “secure an appropriate degree of protection for consumers” is swamping the principle that “consumers should take responsibility for their decisions”. The latter is particularly important in light of the really big issue for our society which is that people are simply not investing enough. The current structure and application of rules is stifling innovation in the market and putting ‘normal’ people off doing anything more than deposit cash in the bank; True Potential published some research suggesting “47% of people would consider investing in stocks and shares based products … if it was quicker and easier to do so” [sic].
As the industry struggles to recover from numerous miss-selling scandals, many of them via advice channels, establishing a viable self-directed sector is essential to close the savings and investment gap – hence the FCA’s goal to enable ‘simplified advice’ to support the mass market. A good place to start might be to clearly state that offering customers a researched and refined list of funds or a league table of star portfolios is not advice, it is just some help.
Regulatory effort would be better directed to ensuring that the governance and research around those lists is fair, robust and repeatable; giving platforms the confidence to enable non-advised investors to make more informed choices. The FCA can meet its objectives of ensuring the financial services system is working and investors are protected as the methods for narrowing investment choices are validated but they are also empowered and enabled to make those choices – which is ultimately what they want and need to do.
In both the cases above the platform isn’t making investment decisions or offering advice. Instead they are facilitating the investor’s decisions, arranging and safeguarding investments – whether that is through consensual sharing of another investor’s activity, enabling a model portfolio or just allowing regular investment selection. The individual still chooses where to place their money.
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