Pensions crisis.
By ROBIN POWELL
I’m excited to be involved in a new initiative called the Financial Suitability Forum. Founded by the Australian financial services entrepreneur Paul Resnik, the forum aspires to be “a gathering place for members of the financial services community who want to build advice businesses, provide services, and offer investments and other financial products around a suitability standard”.
I’m going to be writing regular articles for the forum, and here’s the first, in which I set out six things that politicians could do to help investors. Although it was written with the UK in mind, the ideas are universal. Politicians have a crucial role to play in heading off the global pensions crisis and improving outcomes for the world’s investors.
Britains’ main opposition parties are, for now, resisting attempts by Boris Johnson to call an early general election. But it still looks increasingly likely that we will be going to the polls before the year is out.
The emphasis will doubtless be on Brexit — and the usual divisions over the economy, crime and the NHS. But what about investing and asset management? Politicians from all parties are agreed that Britain is facing a pensions crisis, and that more could be done to improve consumer outcomes. But what will their party policies be?
What follows is a six-point manifesto for investors, which is aimed at defusing the pensions time bomb, and ensuring that as many people as possible can enjoy a decent retirement.
Shift in FCA’s remit towards consumer protection
There’ve been several calls lately for removing Andrew Bailey as chief executive of the Financial Conduct Authority. Others would like to see the FCA scrapped altogether. I’m slightly gentler on the regulator myself. At least it showed with its asset management market study that it understands how deep-rooted the problems in the industry are. Once again the crux is this: too many words, too little action. It’s time, then, to give the FCA a final warning: stop focussing on the issues affecting the businesses you regulate, and start putting investor protection at the centre of everything you do. The public has lost its trust in the financial services industry. We can’t expect people to make proper provision for their retirement if they’re worried about being ripped off.
Tough penalties for firms that lack transparency
It’s a shame it took a European directive to do what UK regulators should have done many years ago but, thanks to MiFID II, investment firms finally have to disclose their fees and charges. They are also required to publish an annual value statement, explaining how they add value for their customers. As my fellow transparency campaigner Chris Sier has warned, some asset managers have been keener to comply than others. Yet none of them has yet been punished. The FCA needs to bare its teeth and hit firms that deliberately obfuscate in the pocket. Individuals found to have been obstructive under the the FCA’s Senior Managers’ Regime should also be harshly dealt with. If banning managers from working in the City again is the only way to ensure compliance, that’s precisely what should happen.
Investor education tax on firms with excessive profits
One of Labour’s more controversial economic proposals is to introduce a financial transaction tax. We’re yet to see the details, but I’m not opposed in principle to some sort of tax on the profits of asset managers. In its report on the market study referred to earlier, the FCA stated that average annual profits were 36% — around three times the average for the rest of the UK economy. If the value the industry adds justified that level of profitability, I wouldn’t have a problem. But it clearly doesn’t, which is why a tax on excessive profits is needed. However, instead of funnelling the money raised from such a tax direct to the Treasury, why not spend it on improving financial literacy? People need to be shown the importance of starting to invest early, putting enough money away each month, the benefits of diversifying and keeping a tight rein on cost. Blogs like mine have played a part, but the need for investor education is huge, and it has to be taken much more seriously.
Higher barrier to entry for new advisers
Good financial advice is extremely valuable, and there are some excellent advisers out there. But I’m sorry to say, in my own experience, there are far too many who just aren’t up to the job. Why is it that, depending on their specialism, doctors are required to study and train for up to 16 years, and yet someone can set themselves up as an adviser with just the equivalent to the first year of an honours degree? Some advisers I speak to lack a basic understanding of academic finance, let alone related subjects such as financial history and behavioural science. We don’t want to discourage people from becoming advisers; we need more of them, particularly women and those from ethic minorities. But the FCA has to insist on a much higher barrier to entry than there is at present.
Stricter rules on what constitutes adviser CPD
It’s not enough to have formal training before you qualify; training should be a career-long process. Doctors and lawyers have to keep abreast of the latest research and developments in their profession. Advisers should too. Yes, the FCA does require advisers to complete a minimum of 35 hours of continuing professional development, or CPD, of which 21 hours should be structured. But many of the events advertised as eligible for CPD are completely inappropriate. Some are little more than sales events for asset managers where advisers are more likely to have their existing beliefs reinforced rather than challenged. CPD should be much more rigorous. Advisers should also be tested to ensure that they’ve understood what they’ve learned — and made to do the hours again if they haven’t.
Consumer warnings on advertorial media content
This final point won’t go down well with my fellow journalists, and it doesn’t give me any pleasure making it. But it’s time for limited regulation of the financial media. I’ve long found it odd that advisers who recommend specific products or strategies can be held accountable, and yet journalists are allowed to tout funds and sectors with no restriction whatsoever. What’s happened with Neil Woodford and Hargreaves Lansdown is a case in point. Woodford was for years a media darling. His staunchest advocate, HL’s head of research, Mark Dampier, was quoted in the money sections almost every weekend for years; one newspaper even gave him a regular column. There’s no doubt that readers perceive these sorts of articles as advice. Media outlets should be required, therefore, to point out that readers have a responsibility to do their own research and, preferably, speak to an independent financial adviser, before they invest.
I can think of many other ways in which a new government could help improve investor outcomes. The Local Government Pension Scheme, for example, is far too inefficient and far too reliant on hedge funds and other costly, speculative investments. But these six points will do for now.
I shall read the manifestos with interest — and cast my vote for whichever party proves, more than all the others, that it genuinely has the interests of investors at heart.
UK WORKSHOPS, DECEMBER 2019
Do you want to learn more about the Financial Suitability Forum and the work it does? Then why not come along to one of two workshops we’re holding in December. You can register here:
Bristol, Wednesday 4th December
Are you interested in getting involved in the Financial Suitability Forum? You can find more information here.
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
