'The FSA was right to investigate my firm' - Three IFAs tell their stories

Three past and present IFAs have broken the taboo on talking about their encounters with an FSA investigation team. Laura Miller discovers an industry divided between suspicion of the rule maker and fair-minded support for the rules...

Ian Hubbard, an IFA at Direct Financial Planning in Plymouth, said his firm underwent an extensive FSA investigation into its self-certificated mortgage business in 2003.

Hubbard backs the regulator’s actions, and says it was right to carry out a nine-day probe into clients’ files and the firm’s advisers. “The FSA came in and looked at our files, and rightly at business which was written and perhaps should not have been,” he said.

But he added the behaviour of the FSA officers who visited his firm and later interviewed him, undermined his support for the process.

“They were not helpful at all. The FSA officers didn’t speak, not even to say ‘good morning’. The police force recognised the need for more of a customer services aspect when conducting an investigation. The FSA obviously has not.”

Hubbard said compliance reviews undertaken at Direct Financial had failed to prepare him for the FSA’s approach.

“During the interview the officers were just looking for ‘yes’ or ‘no’ answers. It was not a conversation. It was totally unlike compliance where it’s a two-way thing, where you put across your side and then compliance argues its side.”

The FSA says “customer service” is not its main priority when investigating firms for potential breaches of its rules. But some IFAs claim a culture of fear is fostered day-to-day by the regulator, outside any enforcement action.

Geoff Bishop, a former IFA who has never been subject to regulatory action, said it is the main reason he left the industry five years ago.

“I was writing 14-page suitability letters and still I was always looking over my shoulder,” he said. “Everything the FSA does is overkill.”

Bishop, who now only advises on general insurance, says the FSA judges advisers to much higher standards than it keeps itself.

“There was a problem with my retail mediation activities return (RMAR) form. I spent half a day trying to fill this thing in, all the while worrying about the FSA letter which threatens a £250 fine and potentially the loss of permissions if it is filed late.

“When I telephoned the FSA, I was told there was an error on the form. I had to call them to find that out. Yet when I made a mistake on a previous RMAR, I was sent a letter like I had committed a crime.”

Bishop says unnecessarily threatening language is common in general correspondence from the FSA, as are instructions banning advisers from talking about the contents of even generic letters and emails.

He claims he recently received an email about attending an FSA-run TCF roadshow, which stated: “We will identify and take action against those firms who do not engage with us, for example, by not replying to this email, and who are not treating their customers fairly.”

The email said not to disclose its contents in whole or part to a third party without the FSA’s consent.

Many IFAs blame FSA chief executive Hector Sants for creating a culture of fear in the industry, after a speech in the wake of taxpayer bailouts of RBS and Lloyds in which he said financial services should be “very frightened” of the FSA.

But Peter Smith, an IFA at London-based Leprêtre & Partners, said he met Sants at an FSA fact-finding meeting and found him genuinely interested in hearing from IFAs.

Smith says: “I had the good fortune to meet Sants for an hour to discuss the industry, both what the FSA was doing and how IFAs were dealing with the changes.

“I don’t think the FSA altogether understands the IFA, and it doesn’t always go about things in the right way. But many IFAs I have met can be difficult as well. A very high level of IFAs carry out very bad business practices.”

Smith says IFAs need to approach the FSA in the same way as motorists who have been pulled over approach the police.

“There are two ways to deal with that situation, calmly or not. The calmer you are the better the outcome is likely to be for you.”

FSA comment

Professional Adviser put the points raised by the IFAs to an FSA spokesperson. She said the way the FSA deals with practitioners depends on the context.

On non-disclosure rules: “Non-disclosure terms are standard practice on all of our feedback letters. We are very transparent once action has been taken and a case is closed.”

On TCF letters: “In the specific case of TCF assessment letters, the tone of the letter reflects our desire to be polite but for the new rules to be taken seriously.”

On enforcement: “Correspondence and meetings regarding enforcement action are not designed with “customer services” in mind - we are the regulator, in that case we are regulating bad behaviour.”

Email Laura Miller about your experience of the regulator and life as an IFA laura.miller@incisivemedia.com