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Markets and Securities Services |
International
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For example, with increasing life expectancy
and changing work patterns, it must be
likely that individuals will want to be able to
not only accumulate, obtain an income and
re-invest that (as now), but also at times
consume some of the capital to cover gaps
in income and meet unpredictable expenses
(such as for health) and then to re-accumulate
through new work.
a manner that sufficiently protects this new
model’s “invested saver”, who spends little
time considering such issues.
Additionally, at some point downside risk will
be addressed by some products. The ending
of compulsory annuitisation has left a gap
on downside risk. Survey after survey of
consumers show they do not want to carry
any significant downside risk (unsurprisingly).
Part of the services wrapped around a fund
may include insurance, a phased-in annuity
component or risk immunisation using
derivatives. Regulation will need to ensure
it keeps pace and this, more than Brexit, will
refocus the FCA. The Financial Ombudsman
Service (FOS) and the Financial Services
Compensation Scheme (FSCS) will need to
be stress-tested to ensure they are rightly
configured to address the next 10 or 20 years
of post-pension freedoms.
Across the Atlantic, just as the Department
of Labor has attempted in the US, so we shall
need to look at regulation from the invested
saver’s viewpoint, ensuring regulation does not
distort competition while ensuring total cost of
ownership, information, tools and options are
equivalently approached across all competing
products. In that regard, the Financial Advice
Market Review (FAMR) has proposed changes
to what constitutes regulated advice. But
it has recognised as necessary that “the
FCA also considers whether it needs any
additional powers to address the potential
risks from unregulated firms operating in
this space”.
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Powers of a regulator over the
unregulated sounds like regulation, and it is
logical to expect to conclude in due course
that the regulated activity of advice speaks
to the age when investors were the subject of
regulatory thought and that to protect invested
savers using multilayered serviced products,
regulation should be looking at “advice or
assisted guidance in relation to an individuals’
later-life provision”.
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The bilateral distinction between regulated and
unregulated will need to reduce and ensure
a much more blended approach is taken to
guidance and online assistance that is neither
advice nor something that should be left
unregulated. Even in countries where the state
remains responsible for later-life provision, the
advance of technologies will rapidly challenge
the current hard-edge to regulation of advice
The direction of
regulation will
depend on the extent
to which society
and politicians can
be confident that
financial services
activities are indeed
beneficial for the real
economy and so for
human welfare.
Previously, much of the advice and
assistance in this area expected a discrete
period of accumulation through investing
and a discrete period of decumulation
through an annuity. This system where, for
many, advice basically ends as the phase
of accumulation ends, is not fit for the
new order. This new complex of cycles of
accumulation and expenditure will require
advice and assistance as to what capital to
spend — between a series of funds — to meet
income shortfalls and where to top up. More
likely, it will demand default-like products
that are wrapped in what are effectively
services so as to be done efficiently and in