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Does Regulation Help or Hurt the Financial Planning Profession in the UK?

By Martin Bamford, CFP

With so much regulatory change currently taking place, and so much attention on the apparent failure of regulation to prevent the global banking system from making monumental errors, it would be easy to come down against the role of regulation.

Yet one question we frequently ask ourselves is whether we would do anything differently in the absence of existing regulation.  The answer is usually a resounding “no”.

Without Regulation, Nothing Would Change

Even if our Financial Services Authority was not about to introduce higher minimum qualification standards, abolish the payment of commission from product providers and insist on a higher threshold for the provision of independent services, it is likely we would still follow this new model.  In fact, we introduced all of the above within our own business nearly three years before they were announced as a regulatory initiative.

Regulation works differently at different levels.  The regulation we experience as a firm of financial planners is different to that applied to a provincial stockbroker or global bank, and rightly so.

Overall, it does a reasonable job of protecting consumers and investors from the worst aspects of bad advice.  Some crooks and sharp practices inevitably slip through the regulatory cracks occasionally, but without the safety net of regulation these would become a common occurrence.

Financial Planning is Unregulated

Financial planning in its purest sense is an unregulated activity in the UK. Our regulations only apply to the sale of ‘packaged products’ such as pensions and investments, rather than the provision of Financial Planning services including cash flow forecasting.

That so few choose to deliver financial planning as an unregulated service in the UK, is the result of several factors.

The line between unregulated and regulated advice is not clearly defined, and financial planners would run a big risk of stepping across the line unintentionally. In the main, investors want a ‘one stop shop’ from their Financial Planner, where product solutions are implemented once advice on the planning aspects has been delivered.  This requires regulation.

Confidence for Clients

Perhaps the main reason that most Financial Planners opt-in to regulation in the UK is the confidence it gives to their clients.

Following a robust set of requirements from a recognised regulator is always preferable to the alternative.  Regulation in the UK also comes with access for consumers to an independent complaints adjudicator (the Financial Ombudsman Service) and a compensation scheme of last resort (the Financial Services Compensation Scheme), both of which help to inspire confidence in consumers.

On balance, and despite its recent failures, regulation helps the Financial Planning profession in the UK. What we would all like to see over the next few years is regulation with greater focus and fairer application.

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