Financial Services Authority (FSA) managing director Martin Wheatley has argued that the financial services sector can look to the example of advisers in reversing a ‘change of culture’ that has ignored the value of client relationships.
Wheatley (pictured), chief executive designate of FSA successor the Financial Conduct Authority (FCA), acknowledged that the mis-selling scandals the regulator has been forced to deal with have originated primarily from the banking sector.
‘We’ve seen a change in culture in much of the financial markets, where the client has ceased to become a valued consumer for the long term and has become a profit commodity for the short term,’ he said, speaking at the Association of Independent Financial Advisers’ gala dinner.
He said that delivering a ‘new level of trust’ represented the greatest challenge for financial services, and said that areas of the market which needed to repair client relationships could look to the example of advisers.
‘The great strength of your sector is that by and large you have not lost that [relationship with the client]. You understand your clients, you are close to your clients, and you know you can’t treat them as profit centres,’ he said.
‘Unfortunately that hasn’t been the case for every part of the industry and I hope much of the rest of the industry can learn the importance of putting the consumer at the heart of its business, in the way that your industry has traditionally done.’
Wheatley also acknowledged the threat the retail distribution review (RDR) posed to mass market advice.
‘The challenges are that this is a new business model, [and there is] an area of significant uncertainty about how the suppliers of services and the consumers of those services will respond to the changes,’ he said.
‘There is certainly a sense that some of the larger providers, particularly the banks, have decided they are not able to provide advice at particular areas of the market.’
But he added that the RDR would lead to a greater clarity of the service delivered by advisers to clients, and would better align the interests of both. He said advisers had embraced the RDR qualification requirements, and that the latest figures showed over 80% had now achieved the level four standard.
Wheatley argued that the FCA would represent a more ‘forward-looking’ regulator than the FSA, and that its approach would help to prevent problems, rather than focus on repairing damage after the event.
‘In contrast to a FSA approach that I can characterise as regulation through the rear view mirror, analysing data about your business models and visiting firms to find out what has been happening, the difference of approach we will try to adopt is much more forward-looking’, he said.
He said the approach would involve the regulator discussing with firms ‘where your industry is going, how your business models are developing and actually getting ahead and trying to talk with you about problems as they emerge, not problems that are historical problems that need significant clear-up’.
‘Because we all know that problems that need significant clear-up come at a high cost to the rest of the industry and particularly the survivors of the industry,’ he added.