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Unintended but Positive Consequences from Financial Regulation

By Phil Billingham, CFP

Whisper it quietly – regulation can be a good thing. And in the UK, in particular, 24 years of point-of- sale regulation has had some profound effects on the marketplace, and these have not always been the intended or predicted ones.

In particular, the continued efforts of successive regulators to increase the transparency of the sales/advice/distribution process have been a big help to both consumers and financial planners.

Disclosure of commissions and fees and the requirement to give all advice in a structured written format came first, in 1995. Almost immediately, calls came for the banning of commission, and a move to fees. In many ways, it is clear that the ‘Treating Clients Fairly’ programme we have experienced and adopted in the UK was part of this transition, leading into the Retail Distribution Review – RDR – that we are currently living through. It will take until January 2013 for this transition to fully come into effect, and the difference between “Adviser Charging” and “Fees” is something that we will yet see develop.

Regulators Moving to our Model

So what effect has all this had on financial planners? After all, you could argue that financial planners comply with all of the above, by default, as part of their financial planning business model.

I would pretty much agree with that. In the process described above, regulators have slowly narrowed the gap between the higher standards of the financial planning model, and the minimum regulatory standards imposed on the vast majority of advisers. One unexpected outcome of this regulatory journey has been to make it easier for ‘advisers’  – who historically had a product distribution model  – to transition to a more advice-led, consumer-focussed planning model.

Fuelling the Growth of the Financial Profession

It is surely not a coincidence that the UK has seen a 20 fold increase in membership of the Institute of Financial Planning (IFP) over this time. There is still a long way to go, but the price of change to a true financial planning model is much smaller than it has ever been.

This was, I am sure, not an intended consequence when these regulatory changes were put into effect. But, we should not be surprised. The truth is that a financial planning model, with planners having a fiduciary duty to their clients is simply the best, most client-centric model we have. Is it any wonder that regulatory improvement fits the continued growth of our profession?

How Do We Influence Regulators?

Our challenge as a profession is very clear. Having been an unexpected beneficiary of regulatory change, how do we now influence regulators to continue to empower consumers and protect the public, but to do so in a way that prevents further financial exclusion, reduces meaningless paperwork, and maintains a healthy profession that young people truly see as a career of choice?

In short, let’s not sit on our laurels. The struggle is not yet over. There are important prizes still to be won. Continued engagement with regulators, at all levels, remains critical, both for our own growth as a profession, and to ensure the public, our clients have a financial services sector that is ‘fit for purpose’.

1 comment to Unintended but Positive Consequences from Financial Regulation

  • Chris Budd

    Nice blog, Phil. I’d suggest one of the biggest challenges we face is to make regulation apply in a way that understands we provide planning and advice, and not just selling products.

    The FSA have (rightly) pushed IFAs down the planning route, and yet they: still don’t regulate term assurance; still ask me for product sales data twice a year; still see a new business register as the starting point for reviewing a case file.

    Until the FSA (and its successor) realise that we are actually doing what they asked of us, I fear we will struggle to progress further.

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