24th November 2010

The “Docklands Clearances”

Please forgive me for seeing some similarities here in the implementation of the RDR, the divisions of the anti and pro RDR lobbies, the so called silence of networks, various trade bodies and the Highland Clearances.

The clearances were forced displacements of the population of the Scottish Highlands during the 18th and 19th centuries that led to mass emigration to the Scottish Lowlands, coast and the North American colonies.

The clearances were part of a process of agricultural change throughout the UK but were particularly notorious due to the late timing, the lack of legal protection for year-by-year tenants under Scottish law, and the abruptness of the change from the traditional clan system and the brutality of many evictions.

The reality of the highland clearances can be seen today in the remains of burned out blackened houses, frequently comprising of whole villages and settlements standing as a testament to the greed of the few in hurting the many.

It is worth remembering, too, that while the rest of Scotland was permitting the expulsion of it’s Highland people it was also forming the romantic attachment to kilt and tartan that scarcely compensates for the disappearance of a Highland race to whom such things were once a commonplace reality. The chiefs remain, in Edinburgh and London, but the people are gone.

So it was with some interest that I read in Money Marketing that “losing up to 20 per cent of IFAs is an acceptable cost in order to deliver the specific improvements brought in by the RDR, according to the FSA”. In giving evidence to the Treasury select committee this week Hector Sants said, “If the reduction in advisers was not acceptable the reforms would not be going ahead”.

This statement, as can be seen by the comments below the MM article, has not garnered too much support from a sizeable element of the IFA community and it has not met with any response from the AIFA as far as I can see.

To top this, MM reported that FSA chairman Lord Turner reckons that a “reduction could be good news for consumers who may see a reduction in administrative costs”.

He said: “Some exit of “capacity” from the industry which is therefore an exit of administrative cost may be in the interest of consumers, it a cost which is being absorbed.”

What he actually means is IFA job losses, not FSA job losses. And along with it loss of livelihood for IFAs, support staff and paraplanners.

Lord Turner, the IFAs the FSA regulate are people, not “capacity”!! Is this a nicer way to describe casualties of the unintended or perhaps intended consequences of regulation. Is “capacity” the FSA equivalent of “friendly fire” instead of shot by your own side or “rendition” instead of “kidnapping”?

This is quite insensitive. Where was “exit of capacity” reflected in the FSA's 2010 business plan when it revealed it would sink an extra �£14 million into its final salary pension scheme and that part of the suggested �£36 million excess IFA fee burden could, some cynics observed, perhaps go to plug the hole in the FSA pension fund. Exit of capacity means an increased fee burden on those left and make no mistake about that.

Is this the same Lord Turner who said that FSA fee increases are a one-off and the industry will not face further rises for the supervisory enhancement program in the future. Speaking at the FSA's annual public meeting, Turner also said: "The Supervisory Enhancement Program involves investment, which means higher cost, which means higher fees. The executive and the Board of the FSA are very focused on ensuring that, after a one off increase in costs to achieve this investment, the industry will not face relentless rises in future. But we cannot avoid the one off increase: in the past, in relation to our highest impact firms, we were trying to do supervision on the cheap."

Is this the same cost conscious Lord Turner who exceeded FSA Handbook expenses limits spending �£391.37 on 2 nights Ritz Carlton Battery Park Washington- USA, and �£2,948.01 on 10 nights at the Conrad Hong Kong Pacific Place Hong Kong - China as well as various stays at the Sunstar Parkhotel Davos – Switzerland and the Four Seasons Hotel Washington – USA as reported in an article early this year?

Most IFAs have built good businesses over many challenging years, they carry a heavy burden of responsibility for what they do into retirement (despite the failure to recognize the longstop by the FSA and FOS) and yes, they too have feelings, aspirations and a need to be treated as fairly as they are expected to treat their customers by the FSA. Those IFAs who deride the “Naysayers” and who have not seen their businesses run over many years under at least four different regulators, shortly to become five and see this “exit of capacity” in a positive light, should reflect upon this famous verse by Pastor Martin Niemöller. Why, because, given my experience of regulation in financial services, it will be them in the future-

“When the Nazis came for the communists, I remained silent; I was not a communist.
When they locked up the social democrats, I remained silent; I was not a social democrat.
When they came for the trade unionists, I did not speak out; I was not a trade unionist.
When they came for the Jews, I remained silent; I wasn't a Jew.
When they came for me, there was no one left to speak out”.

Still, we can all look on the bright-side and hope that the reduction of administrative costs can filter down to less “away days” expenses for Lord Turner et al as many older IFAs contemplate their post RDR future under the 2011 “Docklands Clearances” by way of forced “exit of capacity”!

RDR, Panacea Comment