Introduction
For over half a century, the financial services industry has been plagued by a litany of mis-selling scandals. From endowments and pensions to precipice bonds and unregulated collective investment schemes, the list is extensive and disheartening. Despite regulatory oversight, the problem persists, leaving investors vulnerable and eroding public trust. This article delves into the root causes of these issues and explores a potential solution: the rise of non-intermediating financial planning.
A History of Scandals
The financial services landscape has been marred by a series of scandals involving products like Harlequin, Arch Cru, Keydata Investment Services Limited, ARM, Stirling Mortimer, Sustainable Growth Group, Alpha Bank – Cyprus, and Green Oil, among others. These were all endorsed by regulated investment advisers, often considered the “experts” in the field.
Regulatory Oversight: A Failed Deterrent
Between 2016 and 2018, an estimated 1,500 British Steel workers were advised by Argent Wealth to transfer out of their final salary pension scheme. This occurred under the watchful eye of regulators, raising questions about the effectiveness of current oversight mechanisms. The Financial Services and Markets Act (FSMA) established the regulatory perimeter, but it has proven insufficient in curbing malpractice.
The Legal Quagmire
Over the decades, lawyers have grappled with the question of legal liability. Does it rest with the actuary in the ceding scheme, the actuary in the receiving scheme, or some other third party? The answer is unequivocal: the liability sits squarely with the intermediary, often until their last breath.
The Ineffectual Solution
Regulatory bodies have attempted to solve the problem by regulating both the distributors and manufacturers of financial products. These are the entities that control the placement of client money. However, this approach has been largely ineffective, and the problem is arguably worse today than it ever was.
A Glimmer of Hope: Lessons from Abroad
In India, the Securities and Exchange Board (SEBI) took a radical step by banning financial advisers and financial planners from acting as intermediaries. In other markets, bad intermediation has been criminalised. These measures have shown promise in curbing financial mis-selling.
The Rise of Non-Intermediating Financial Planning
The emergence of the non-intermediating financial planning movement offers a viable solution to this longstanding issue. By removing the intermediary from the equation, the scope for mis-selling is significantly reduced, thereby restoring integrity to the financial planning process.
Conclusion
The financial services industry is at a crossroads. The traditional model, despite regulatory oversight, has failed to protect consumers from mis-selling scandals. It’s time for a paradigm shift. The rise of non-intermediating financial planning could very well be the panacea the industry so desperately needs. Only time will tell if this approach will succeed where others have failed, but the early signs are promising.
The onus is now on regulators, industry stakeholders, and consumers alike to embrace this change and work collaboratively towards a more transparent and ethical financial planning ecosystem.
Academy of Life Planning 