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Secret wealth executive: strangulation by regulation

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Secret wealth executive: strangulation by regulation

No conversation between wealth managers lasts long before reference is made to the explosive burden of regulation and the impact that it is having on our industry.

No one disputes that sensible regulation is necessary. Sadly, practicality and common sense increasingly appear to have been abandoned. The unfortunate consequence is that respect for both the rules, and those that apply them, dries up. This is a dangerous and unhealthy state of affairs.

It is now accepted as the ‘norm’ that a wealth manager is likely to be spending up to 75% of their working day on regulatory matters. It is a wonder that a manager has any time to think of the investment requirements of their client.

In short, regulation is now not only distracting wealth managers from the job that their clients are paying them to do, but also undermining the natural relationship and bond of trust that is so essential to an effective client/manager relationship.

Leaving clients frustrated

Clients often feel stifled, restricted and unnecessarily imposed upon by a regulatory regime designed to protect them. This speaks volumes about how inappropriate some regulation has become. If you thought Mifid II was onerous, just wait until you face up to the requirements of GDPR which goes live in May!

Compliance departments are increasingly seen, at best, as an irritant and at worst the enemy within, rather than a core and respected pillar within a business. They are regularly at loggerheads with their chief executive and board as they are often perceived more as an agent of the regulator than an employee of the firm that pays their wages.

Compliance costs as a percentage of overheads are escalating exponentially. In short, the ‘nanny state’ is now firmly in control and decides what is best for everyone. Just a glance at the regulatory disclaimer which acts as a footnote to any financial publication makes one realise just how farcical things have become. It is designed to protect and warn, but can anyone identify who reads it, why it has to be so long and exactly what it is meant to achieve? And yet we now all accept it as normal.

As stated earlier, not all regulation is bad. However, the time has surely come when a greater stand needs to be made against the more ill-conceived and often ludicrous requirements of an increasingly detached regulatory regime. The feeling is palpably that the lunatics are now almost in charge of the asylum.

Sledgehammer, meet nut

For example, the bribery act and concerns about inducement is a current ‘hot topic’. The regulator appears to be using the proverbial sledgehammer to crack a nut! Exactly what the policy is remains ill-defined. This means there is little consistency in the way that policy is being applied amongst regulated firms. They all seem to have a different interpretation – mainly driven by the judgement of their individual compliance departments.

As a result, golf days, receptions etc are increasingly a thing of the past and lunch with a lawyer or accountant a non-starter. We now live in a world in which a guest may have to ask his host, in advance, how much is going to be spent on them before they can accept an invitation.

The challenge

And against all this we have a government (whose power, as described above, is delegated to the regulatory authorities) who have given the Democratic Unionist Party (DUP) £1 billion to ‘buy’ 10 votes. The inequity and double standards of such an obvious and serious case which bursts through the inducement barrier to outright bribery is beyond parody,

To challenge, it is necessary to target the head of the regulatory python that is strangling the industry. This, of course, is our government which empowers the regulator to act as both judge and jury on its behalf. Unfortunately, it would be politically unacceptable for them to be seen to loosen regulatory powers.

Our industry is therefore being dictated to, and at the mercy of, an empowered but uncontrolled force which is almost impossible to hold to account.

The baseline assumption appears to be that every client is ignorant and needs protection and that all wealth managers are devious opportunists. Somehow, someone has to put a brake on this increasingly toxic atmosphere which is quietly suffocating us all.   

This is what we hope will be the start of a ‘regulation corner’ where wealth management executives can air their concerns and share the unintended consequences of specific pieces of regulation on a semi-regular basis. We want to start a conversation around issues no doubt many are dealing with.

If you would like to contribute, anonymous or otherwise, please get in touch at wmnews@citywire.co.uk. 

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