With Harriett Baldwin installed as Economic Secretary to the Treasury, the advice industry has friends in high places.
It has been her support for the sector – alongside incredible changes to regulation and pensions – that is driving the Financial Advice Market Review (FAMR or Farmer, as it now known).
It is a crucial moment for the advice market and a major opportunity to reshape the regulatory landscape.
Top of the list of grievances is the old favourite: the long-stop.
In October, the FCA said it was consulting on the idea of a 15-year long-stop as part of the review.
This would stop consumers being able to complain about bad advice after 15 years instead of the current situation where there is no limit on adviser liability.
Let’s look at the arguments for such a measure.
The consultation said the lack of a long-stop could be stifling new firms and preventing advice on some products.
Advisers have long argued the lack of a time limit on liability significantly devalues their business, increases PI costs and means they can be fighting over complaints long after they have peacefully retired.
Moreover, the political, regulatory and economic could have changed beyond recognition. The Financial Ombudsman Service considering a complaint in 2015 based on advice from 1990 could be accused of applying modern standards on an old case.
We saw this in October 2014 when the FOS ordered HSBC to repay trail commission to a client who did not receive ongoing advice. It could be argued the provision of ongoing advice was retrospective action from the ombudsman.
But let’s be frank.
A long-stop would be a knife through the heart of UK consumer protection in financial services. It is the most retrograde and damaging policy currently under consideration by the FCA.
Clearly long-term products need long-term protection. It is morally wrong if the first time someone realises they have received dud advice they are barred from complaining because 15 years have passed.
Sure, you can provide regular reviews and information to clients but we all know how limited consumer engagement is in financial products despite decades of effort.
Imagine the situation. It’s 2035 and Mrs Smith is 65 years and about to retire. She is looking at her pension and she is not happy with the advice she received in 2020. She wants to complain. She can’t. Her retirement pot has been obliterated through poor investments.
Now imagine that repeated thousands of times. Now imagine the front pages of national newspapers.
A long-stop would not just shred the reputation of the FCA as an organisation promoting consumer protection, it would also badly tarnish the advice sector.
Financial advisers already have a poor reputation but increasing professionalization and regulation is slowly rebuilding its image in the eyes of a distrustful public.
This would bring a loud screeching halt to that progress. The idea that respected lobby groups and trade bodies are campaigning for such a move is a damning indictment of their political nous.
Alongside reputational damage, it would also incentivise complaints to advisers to be delayed and processed slowly.
And, perhaps most significantly, a long-stop could not possibly achieve its aim of providing advisers with protection from long-term liability.
Even if it is forced through by a favourable Treasury, it is not fixed forever. It would be under constant political pressure from consumer groups, MPs and others. The next government could reverse it on a whim. The next FCA chief executive could scrap it on his or her first day.
There is also the risk of retrospective action if there was a public outcry in 15 years’ time about bad advice. The risk of long-term advice liability would remain for anyone buying an advice business, PI insurers and advisers themselves. It wouldn’t be a step towards filling the advice gap or boosting innovation. It would achieve very little.
So it would be morally long, trash the reputation of advisers and it wouldn’t even work. A long-stop would be an epic act of self-harm and lobbying for it is short-sighted and self-defeating.
The FCA should end this consultation today and advisers should accept the responsibility of providing long-term financial advice.