The Life Insurance Market
When I was seeking new clients in the 1980’s the big marketing lie of the day was that the Equitable Life were better value than any other insurer could ever be because they paid no commission. One could not challenge this as their with-profits fund had no explicit charges. The lie was central to all their marketing and was believed by MPs, The Law Society and all the great and the good. I even took to the desperate measure of carrying round a job advert promising Equitable recruits salaries and bonuses far greater than I could then hope to earn.
The regulator’s naivety meant they never dealt with that lie. Instead, it was though a separate bit of incompetence that the FSA (as it is now known though it had other acronyms then) bankrupted the Equitable. After 8 years the government agrees with this view. Last year the government also acknowledged that the FSA’s naïve regulation of banking and borrowing, enabled the credit boom and crunch and thus the depth of the current economic blight. By my reckoning this makes the FSA complicit in causing more damage to more savers, investors and consumers than all the conmen and women of Britain put together.
The Regulator’s methodology of recruiting passing bands of civil servants on inflated salaries to do what they think is best for a few years before moving on to other things has caused a culture of institutional naivety. RDR is the current empirical proof of that. It has had 3 stages in its life cycle. The first was born of one civil servant’s simple desire to make his mark before he moved on. Callum McCarthy will proudly display his hideously costly initiative on his CV as he makes his way to the Lords. The second was Amanda Bowe’s, she of course has moved on too now, but during her brief tenure she listened to a lot of common sense and wrote it down. Her version would have inflicted minimal damage on the good and forced the bad to reform. It was utterly different to the 1st version. And now Dan Waters has rung the changes once more to reveal a ridiculously naive 3rd version. A plan designed to increase direct sales forces and so help consumers. Have they learned nothing?
In short, the regulation of advice has exactly resembled a compass in the Bermuda Triangle. It has gone every which way and suddenly from all that vacillation and confusion the FSA has declared that it is now immediately certain of the path it must follow. Now it aims, to paraphrase Mick McAteer, to get worse advice to more consumers. Their certainty is that of the desperate and the naïve. They had to do something; they did not know what to do, so they did what the most powerful and latest lobbying effort told them to do. And as good civil servants they pretend that they worked it all out properly and are certain they are right and it will happen as they say it will, but just in some years time. Surely no one believes them?
The RDR should have a 4th version, but this time it should stand for the Regulatory Disasters Review. The FSA should be reformed, its transient civil servant culture abolished, its payscales and perks cut immediately as have been those whom it regulates. Like some mediaeval teenage monarch the FSA is both naïve and certain of its power and thus a most dangerous force in our market and the economy at large. Its time for real regulatory reform; the reform of the regulator, not the regulated.
This article appeared in a recent edition of Money Marketing.
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