2/2 This wouldn’t be so serious if it didn’t expose decent advisers, with good ethics and greater technical competence than FCA, to risk of disproportionate redress, where causation is weak/unproven, due FCA’s flawed file assessment. At least wait for CP22/6 feedback FGS!
— Stuart Fowler (@fowlerdrew) April 22, 2022
Some of the fallout from the BSPS scandal has contaminated the more rigorous financial advisors who have suffered reputational if not financial damage. I spent much of Saturday reading a paper by Stuart Fowler- one of the most intellectually rigorous advisers – on the deficiencies of the approach adopted by the FCA (and Grant Thornton) in condemning 46% of DB transfer advice given to steelworkers as flawed.
Stuart’s arguments are compelling, you can read them here. But having read them, I wonder what they will lead to. The immediate hope of IFAs is that it will lead to the FCA reconsidering its redress proposals , which will mean less money for steelworkers. I think the genii is out the lamp on this one, once an expectation has been given, it is almost impossible to not follow through.
As far as the Public Accounts Committee (PAC) is concerned, the issue is not whether the FCA wrongly calculated the percentage of wrongful advice , but why the FCA were behind the curve in allowing this advice to be acted on. The implication is that – given half a chance – IFAs will behave badly. It’s understandable that Stuart Fowler and others want to contradict this. But it is highly unlikely that either the FCA or the PAC will allow confidence in consumer regulation to be further undermined by accepting Stuart’s arguments.
In my opinion, for IFAs , the battle is lost. It should have been fought 4 or 5 years ago when the FCA first conducted its analysis but it wasn’t. The best that Stuart and those like them can do is to rebrand as financial analysts and put distance between themselves and the advisers to the mass-affluent whose profits are driven by wealth-under- their-management.
The majority of the costs being incurred by former BSPS members are from the advisory fees associated with the management of the pots created by the transfers. The conditional charges levied for the advice (typically 1-2% of the transfer) were great for initial cashflow but it was (and is) the ongoing annuity stream from 1% pa advisory fees which are supporting the valuations of advisory firms. The likely sale price of an IFA business for an ageing advisor hangs on the businesses projections for this ongoing income.
The FCA are well aware of this and also aware that the capacity of these businesses to replace lost profits from increased PI costs, lower new business from future transfers and the redress payments agreed through FOS, are forcing the closure of many IFAs. They will also force down the valuations of many larger IFAs , which have become larger through consolidation, facilitated by investment from private equity.
In my view, the high quality advisers – or financial analysts – such as Stuart Fowler will not be damaged by the fall-out from BSPS but will emerge the stronger from what happens as a result of the redress scheme.
The FCA analysis is imperfect and so is the current FOS/FSCS process (which will need to be revisited for those already compensated). The public’s attention is not on IFAs but on what are seen as the IFA’s victims. Which is why the views of IFAs were ignored by PAC.
If I were an IFA right now, I would be keeping my powder dry and marshalling my resources to meet the demand for better advice and better service that will follow the implementation of redress.
Stuart Fowler