26th November 2015

Time for professional regulation

 “You cannot continue on the same path and arrive a different destination!  - Dr. Steve Maraboli

The Case for PAR – The Professional Advisers Regulator

FAMR offers a great opportunity to improve regulation and Libertatem is convinced that it is a time to stop tinkering and exhibit bold thinking and bold ideas.

Last week, we initiated the idea of PAR – The Professional Advisers Regulator.

The feedback has been truly excellent. We conducted a straw poll of Libertatem members which rendered overwhelming support for PAR. We have had similar support in the media from advisers who have yet to join Libertatem. As a result, Libertatem is going for PAR as the central part of its FAMR strategy.

We believe by offering a separate regulator designed specifically for the Professional Advisers; PAR would do a better job for our clients than the FCA, at a lower cost. If we can cut costs; we can cut charges and become more affordable to more people. If we can cut bureaucracy; we will have more time to advise more disenfranchised clients. This delivers what the Government seeks from FAMR.

In the last week, I have met with MPs, Treasury officials, TSC members, Bank of England, FCA and PRA Staff as well as other opinion formers. It was made clear to me that nothing is excluded from the Financial Advice Market Review and that Libertatem’s idea of separating Professional Adviser regulation into a defined lower cost area is found to be exciting and credible.

The drive behind FAMR is the Government’s desire to increase the number of consumers receiving advice - the polar opposite of the outcomes of the last 30 years of regulation. In particular RDR has reduced the number of advisers available by 6.000. It has also halved the number clients being serviced by each surviving adviser. The two issues have cut the capacity of the Professional Advisers sector by 10m consumers.

The Professional Adviser’s contribution to FAMR’s aim of increasing the number of the advised must be to re-engage with as many of those 10m as possible. This requires a major cut in 2 costs - regulatory and FSCS. From 1999 to 2014; the Adviser’s regulatory costs have increased threefold.  By 2025, the same costs will have increased another fourfold.  Libertatem estimates the current cost of the regime is in excess of 25% of fees. By 2025 it will be in excess of 50% - this is unsustainable.

The current cost growth is a direct result of the FCA’s lack of accountability.  It decides its own budget and its own priorities.  It has an open cheque book, yours - or more accurately your clients.

The majority of the current FSCS claims are product provider and regulatory failures being unloaded onto the adviser sector. At the current rate of increase they will double every 3^rd year and that presumes the number of advisers remain the same.

It is time that the funding of FSCS is placed where the money is kept - with the providers and platforms. If the FSCS costs are distributed across all holdings the percentage cost would be tiny and not as currently anti-competitive. If the FSCS costs continue to be visited on advisers - only the current clients of advisers will pay leaving the 10m who no longer receive advice untouched. This creates a spiral of decline where increasing costs are visited on ever decreasing numbers of advisers and clients.

It is time we concentrated on the priorities of Professional Adviser clients and satisfied them. The major benefit of a regulator designed for Professional Advisers is focussed regulation based on our actual risk to the consumer. Despite having over 70% of the market - Professional Advisers represent less than 1% of claims taken up by FOS and 2 in 1,000 of their successful claims.

So what are we asking for from FAMR? Simply that when the Chancellor announces the Review’s findings at the next Budget: His speech includes a commitment to seriously examine the creation of a Professional Advisers Regulator. Then we can do the detail.

The biggest benefit of PAR must be in establishing confidence in the sector.

If Robo and other advice models are to be part of an adviser’s arsenal; we will need incoming investment which will only come when the investor has confidence that his investment is not prone to eccentric FOS retrospective judgements. Whatever the reality; that is certainly the perception that is holding them back.

The benefits of PAR are clear but the big question is it do-able?

In practical terms certainly; If PAR was staffed away from London and was established to deal with real issues; I am convinced it can be done better for significantly less expense. Let us be clear this isn’t a rerun of FIMBRA – the self-regulation bus has left never to return. But by concentrating on the needs of our clients and making PAR properly accountable I am confident we can create a regime that is fit for purpose.

As importantly is politically possible? From my conversations; I believe it is very do-able but only if advisers and their clients unite and fight for it – Now!

We will need to raise £50,000 before Christmas. We will need more as the campaign is likely to last for all of 2016. If we are to deliver this we will be involved in significant research, PR and Media costs. .  Libertatem will provide the script, coordinate the effort and garner the media support. But advisers need both canvass their MPs and fund the campaign.

Since Libertatem has been launched I have received phenomenal verbal support. But candidly talk is cheap and campaigning is expensive.

This week we will launched the PAR Fund designed for those advisers and providers who wish to support the effort without necessarily becoming members. Members we like too of course!

Go to www.libertatem.org.uk/PAR to contribute and receive more information

So here is my challenge to the sector.  Join us, fund us – win!

Garry Heath MCIM, Director General Libertatem – The Impartial Advisers Association

Regulation