Was it better in 'the old days'?

We are approaching the 20th anniversary of the Financial Services Act and I find myself reflecting on the achievements and failures of legislation and regulatory bodies to which it has delegated its powers.

Although initially sceptical, I have to admit that many of the initial aims of the Financial Services Act were admirable, had merit, and were probably long overdue in a sector that was previously unregulated.

Over the last 10 years, I have become very cynical about the regulatory bodies as they have evolved (FIMBRA, LAUTRO, PIA and FSA) and my suspicions have grown with regards to the influencing factors and motivators that are driving the continuous change in regulation.

Like all regulatory bodies and government departments, a lack of continuous change would lead to a lack of justification of existence. Consequently, these types of organisation function on a cycle of continuous alteration and adjustment, if not a regular overhaul of rules and regulations.

And if there are rules and regulations, then surely there should be accountability and responsibility? Now, you either believe in a blame culture, or you don’t; there is no in-between. Yet the regulator will not accept blame for anything, or give definitive guidance on any rule issues. They simply apportion blame where they see fit.

So, as a landmark anniversary approaches, we find ourselves at a natural point of reflection regarding what we have achieved.

Many aspects of the Financial Services industry, before 1987, were unsavoury, and vast numbers of advisers should simply not have been advising clients.

The number of advisers in the UK has fallen dramatically, and this has led to a natural polarisation of advisers towards the higher net-worth end of the market.

I recently attended a fascinating presentation by Richard Buxton of Schroders. One of the statistics mentioned was the fact that the lowest fifth of UK households (judged on gross household income) were 78% dependant upon State benefits for their income. The fourth quintile were not much better, as 43% of their income derived from State benefits.

Now, however, you look at these figures and it is quite apparent that the financial services sector has been unable to deliver financial advice to these people. If they were unemployed or on incapacity benefit, then you would have to question why PHI or sickness and redundancy cover had not been offered. If they were retired, then why have they not saved in personal pensions or received adequate pension advice? If they are unemployed, then why did they not have adequate savings?

After 20 years of financial regulation, the vast majority of people in the UK are now disenfranchised from financial advice. Financial advisers cannot afford to advise them on a commission basis, these people cannot afford fees and, as a result, the people in society who most need to save are simply not saving.

It is easy to count the cost of regulation from the perspective of an IFA practice, but it is impossible to put a price on the cost of regulation when it comes to the lack of saving and the lack of access to financial advice currently felt by a huge proportion of the UK working population.

The demise of the direct sales forces and the products they offered will ultimately have a huge cost implication for the government. Granted, many of the direct sales forces had their failings but they did deliver financial advice to the people who most needed it. This was often coupled with a degree of obligation resulting from personal relationships.

For whatever reason, we have had a reasonable economic climate over the past few years, and as such we are able to support a high proportion of individuals deriving a high proportion of their income from State benefits. But this government cannot keep spending forever, and as the economy goes into recession, the PSBR will come under tremendous strain.

Perhaps then it will be recognised that financial advice should be provided and delivered to everybody who wants it, without the huge obstacle of regulatory costs and the compliance burden that has been created.

Adrian Shandley is managing director of Premier Wealth Management.

The views expressed are those of the author and not of the company he represents.