This is an interesting post from Dr Alf via the Public Accounts Committee.
I was in the financial services industry in the UK and America for more than 25 years, so saw the legislation evolve from something which was supposed to protect the public from salespeople who didn’t know what they were doing to something which is supposedly designed to protect the public from themselves and which restricts mortgage lending to people with huge deposits.
The legislation was never designed to “protect the public” but was as my CEO at a major public company told me prior to the acquisition by GE Capital, to put 50% of the IFAs out of business (he was repeating the words of the senior regulatory official at the time).
The original Financial Services Act was the brilliant mental construct of Sir Mark Weinberg, the founder and Chief Executive of Allied Dunbar, a highly successful life assurance company.
The idea was to create more professional salespeople who knew their products, took basic exams and disclosed what they were doing to a UK public which with few exceptions was composed of financially illiterate people.
The effect of this has been to put 50% of the smaller IFAs out of business and probably 75% of the life assurance companies. It created greater complexity in the buying process and by eliminating commission payments and introducing fees it has made financial advice of any kind completely out of reach of the 85% of people who cannot really afford fees. It has reduced choice and as we saw in the engineered financial and banking crisis and with the disgrace of Equitable life, the act provides no protection when the chips are down.
The truth is that regulators are civil servants and people who can and are out foxed by much cleverer people who run life assurance companies, banks, credit card companies, investment funds and loan companies. The directors of Equitable life, who are still alive, live high off the hog and to this day show no contrition for what they did because Gordon Brown, the former UK Prime Minister, deliberately moved so slowly that many of the duped Equitable Life Policyholders had died before they could be compensated. Dr Alf, who writes these blogs from his Cypriot lair, did live through, but even he as a former financial director of major companies and as a Chartered Accountant, did not emerge unscathed from this particular fraud.
Regulators are always looking backwards at history and often do not understand how life really works; the financial circumstances of people in the real world and how ordinary people think and live. They are in 95% of cases out of touch and behind the curve so their measures do not work irrespective of the political direction of the Government of the day.
Always there is talk of lessons learned and how new “robust processes” are being designed or are “in place” but in the last analysis – nobody goes to prison as is the case in America where Bernie Madoff and Ivan Boesky were locked up by the Feds along with the so-called “Wolf of Wall Street”, Jordan Belfort whose role was turned into a film starring Leonardo Di Caprio.
Despite the good work of the Public Accounts Committee, unlike in America, regulators in the UK have no teeth – and they are typically run by people long in the tooth, looking to their own gold-plated pension.