It is over 2 decades, since our current regulatory empire was created and, in that time, the prime makers of policy have been the regulators, who were, by law, not truly accountable to anyone and who have no commercial skin in the game. So, has this bizarre anti-democratic experiment succeeded? No.
Do the Empire’s policy wonks understand the issues that they confront? Not in any meaningful way. Last week, I was part of a FCA teams meeting. The discussion centred around promotion of investments and who approves them.
There was the unspoken presumption that a way could be found for advice to be avoided. Indeed, I noticed a mindset that Christopher Woolard intimated when he left the FCA. Namely a rather snobby attitude to small business in general and advisers in particular. Unless something was delivered by large firms, or the state, it was not worthwhile. The modern reincarnation of “being in trade”.
A similar attitude rattles around the civil service. Unless government has delivered a service it cannot have any value. Similarly, public service is purer and saintlier that anything mere commerce can deliver. The NHS, for all its failings, is in some mystical way, holy in comparison to private provision.
The Empire was enthusiastic that, with the right information, consumers should have the confidence to make decisions on quite complex products. It is easy to forget that 67% of consumers do not understand percentages. A central tool in making investment decisions.
Most consumers are completely clueless about investment, tax, or regulation and yet it was seen to be beneficial for consumers to make confident choices despite their lack of practical education. There is a mismatch between that aim and the talents that many consumers possess.
There are 2 issues here. Firstly, let us talk about mis-buying which is mis-selling’s more dangerous sibling. As an example, before deciding on particular investments, consumers should think about their protection. It is pointless to invest if your children are exposed on your death?
At regional meetings on the 1990s, remember those, I used to joke that regulation was trying to create a market where consumers could mis-buy with confidence.
Initially, it would get a laugh but soon it was too true to be funny.
Sadly, there are those is regulation who still think that advice is an expensive luxury and hang on to any alternative, however unproven, to avoid advisers. Simplified advice, robo advice and now back to simplified advice again. If half the effort to back these theoretical solutions had been spent on advice - scams would not be the issue they now are. Unfortunately, the time lost on these theories have left 2 decades worth of consumers unadvised.
Secondly, when was it in the public interest to have confident but ignorant investors charging around the market making unadvised decisions?
The danger of this was brought home to me in 2017 when I was helping the victims the Connaught Fund. Previously, I had helped the victims of Equitable Life. Each group of consumers were confident of the decisions they had made until each firm collapsed. In open meetings for the Connaught victims, I found that 40% of them had also invested in Equitable.
There is a class of consumer that, despite little practical knowledge, think they know best. They are encouraged by the political class and the public servants who have the same mindset. Generation X believes that because they have a 2.2 degree in Mass Meedja; they are somehow masters of the universe.
This mindset should be discouraged. Instead the FCA thinks it great. No doubt when it falls apart they will say it our fault. So why on earth are we still allowing the Empire to create policy, and is letting them continue in the public interest?
Why do not we understand that if advisers get their act together, they are far better placed to act in the public interest - indeed it is our biggest card. But the advisers are currently far away from getting their act together. It could be argued they have not got an act at all and that is why we are in such a submissive position now.
The current Empire, like all bureaucratic structures, is disproportionally damaging to small businesses. Profitable professional advice is only found in SMEs – that is the nature of the business.
The only way Professional Advice escapes this vortex is to become a proper profession and run its own regulatory world in the public interest. This requires not just to talking about being a profession but actually becoming one.
How we do this is in the second part of this article which will be published Thursday 24th