During my varied financial services career, I have been tasked to sign off, I’d guess over a thousand financial promotions for marketing agencies and providing in house compliance consultancy.
From split capital investment trusts to REITs, QROPs to SICAVs.
I’ve had to explain to bright young creatives what the complex products are and how they can be compliantly taken to market in terms of copy and visuals.
My lifetime experience as a financial adviser understanding complex regulator rules has helped me to deliver correctly within the financial promotion rules for consultancy clients and most importantly, the public.
Designing safe promotions
A memorable meeting held with the Financial Conduct Authority (FCA) predecessor, the Financial Services Authority (FSA) many years ago included being asked about how they could alert the public about high-risk products and investments.
The regulator’s ideas included using red, amber and green surrounding ads and prescribing the size and frequency of ads to all media buyers which would to stop the deep pocketed providers buying larger or more frequent money marketing activity.
We need to align the trinity of the FCA, FOS and the Financial Services Compensation Scheme (FSCS) so they have the same view
We also discussed how to market high risk investments to include the relevant warnings to be written in the financial promotion rules.
Moving forward 20 years, this month the FCA issued PS22/10 called “strengthening financial promotion rules for high-risk investments and firms approving financial promotions”.
My thoughts from 20 years ago remain the same.
Firstly, we need to align the trinity of the FCA, FOS and the Financial Services Compensation Scheme (FSCS) so they have the same view on products, investments also the rules, adjudications and guidance need to match.
For example, if a self-invested personal pension (SIPP) client holds a ‘standard’ investment as defined by FCA rules and the investment falls in value, the Financial Ombudsman Service should not be able to rule against the SIPP provider. This occurrence happens regularly to the annoyance of providers and advisers.
Execution-only (an apt moniker) does not have to consider suitability, and this is where the regulator should give its attention
If a situation arises like the Woodford Investment Management collapse, authorised corporate directors administrators such as Link Fund Solutions in the Woodford case should be forced to act as quickly as possible.
A Money Marketing poll showed 86% of respondents said they did not feel it was acceptable that the Woodford scandal remains unresolved close to three years later, with thousands of investors waiting to get some of their money back.
High risk investments
So, what is high risk for investors?
For those paying for regulated advice it’s established how to correctly check risk versus suitability.
‘Cart before the horse’ comes to mind for the way we are currently regulated
However as the FCA hikes its membership rates, adviser charging costs appear too expensive for the majority.
Self-managed investments transacted on an execution-only basis (an apt moniker) do not have to consider suitability, and this is where the regulator should give its attention.
Single share, ETFS, CFDs and FX investments are being sold by the bucket loads by the fintechs with no regard for suitability which can be very high risk, particularly for the young.
‘Cart before the horse’ comes to mind for the way we are currently regulated.
The investment opportunity is the main driver for investors and the financial advice the delivery.
The highest quality financial advice will not protect an investor from a failing investment in the future.
The only sure-fire way to protect the public from high-risk investments is to regulate the investments taken to market, particularly on an execution only basis.
I can spot a rubbish investment opportunity, so let’s hope the regulator can and gets tougher on the actual products taken to market and not just its promotion and financial advice provided.
Kim North is managing director at Technology & Technical
All great points Kim and your knowledge and expertise spanning years in the industry is there for all to see.
Unfortunate really, the FCA are both deaf and blind to such things…. which is why they are always 5 or 10 years behind, making us sweep up an empty stable because they can never close the door.
Dare I say as well a risk based product levy would also be much needed …
Hush ….who said that !!
Product regulation is practical impossibility. It’ll never happen.
I agree, Kim it would potentially help save customer harm and avoid programmes such as we had last week.
However, I have seen this approach in some US States and invariably it becomes a bottleneck at the Regulator and, to some degree, stifles real innovation. Like all good ideas, it’s all in the execution.
I have yet to see a good argument against the following: An explicit product levy which is detailed on the Key Features. If a product has the levy its covered by FSCS. If no levy no cover. Risk grading of the cost could be a useful refinement.