UK regulators come down hard on advisers
The introduction of a new regulatory environment in Australia’s financial services market has not exactly been smooth sailing for advisers, but it is nothing compared to the regulatory storms buffeting the UK market.
Jamie Simmonds, director of UK-based Project V11 Limited, claims the new regulatory environment in the UK is perilous for advisers.
Speaking at the Independent Planning Practices Conference in Sydney earlier this month, Simmonds said the tougher regulatory regime was the result of major scandals over the past 10 years, including ‘pension mis-selling’, which has caused a collapse in consumer confidence.
The UK’s Financial Services Authority (FSA) has recently responded by placing “intense public pressure to perform”, according to Simmonds.
In terms of liability, the new regime is “absolutely focused” on the directors and owners of companies operating in the market.
“As an owner or director, you are held personally responsible for the actions of your company, and you can be heavily fined, jailed, censored or removed from the industry.
“These sanctions were available [in the past] but now they are there with teeth, and being followed up with visits from the regulator to determine your fit and proper status to run your business.”
The danger for directors and owners is that there will be legislative grey areas in relation to new products under the regime.
“Quite often when we ask the regulator about these issues these days he asks us to tell him what we think we should do and he will let you know if we are right or wrong.
“It’s a bit like trying to pin the tail on the donkey blindfolded, and yet you get it wrong at your peril.”
Simmonds said one of the key new regulations to be introduced by the FSA is ‘depolarisation’, which effectively gives a financial planner or financial services company three options of positioning themselves in the market.
You can opt either to be tied to a single product provider, or be ‘multi-tied’ to more than one, or you can be ‘independent’.
The later option does not mean you are independent in the strict sense of the word, Simmonds said, but rather you can opt to be ‘independent multi-tied’ to providers or ‘independent fee-based’.
‘Independent multi-tied’ is where you get commission back from service providers, while independent fee-based is where you can charge clients a service fee but cannot take commission from product providers.
The purpose of this legislation is to give clients clarity in terms of the price clients are paying for financial services products, but Simmonds says there is a problem with this.
“The only thing a planner is actually declaring under the legislation as it stands is his or her distribution costs, but not any costs on the manufacturing side.”
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