The government wants to increase the regulator’s information gathering powers. I take it that you are a big fan of that?
I am. For a regulator to be effective it needs to be strong and it needs to use the powers it has. In general terms, regulators tend to under-utilise the powers that they have, but by giving them more it gives them more opportunity to put things right.
In particular, as I understand it, they are actually going to make it a criminal offense for an employer to abuse the running of a DB pension scheme, which is absolutely profoundly brilliant.
What it is saying is there is right and wrong and we can tell the difference. If you are, for example, issuing massive dividends and pay increases without giving due consideration to the wellbeing of your pension scheme’s members, then that is wrong. You shouldn’t be doing wrong stuff and we are going to be coming at you to fix it.
Are investment consultants and fiduciary managers following best practise?
There is a risk here of throwing them all into the same group. There is a spectrum. At one end there are investment consultants who are client centric, aligned to the clients’ interests and who always do the right thing.
At the other end there are bound to be investment consultants advising in the institutional space, who, because the market is not regulated, have found it all too easy to capitalise on the asymmetry of information between themselves.
When I look at it from the perspective of member nominated trustees, there are many member trustees and trustee boards who have had investment consultants make good use of their knowledge and insight without being fair to their clients and that that is wrong.
I welcome the FCA’s referral of the investment consulting industry to the CMA. I expect that they will decide to bring the investment consultants within the regulatory parameter.
We have too much regulator arbitrage, it is a fractured market. If organisations are advising on their own products then they need to demonstrate why their product is better than something else in the market. It is good example of conflicts of interest, inducements and commercial pressures making people behave in a certain way. That is exactly the kind of thing that needs to change.
The FCA is almost unique in having a competition remit. The only other one is in Malta. So the Maltese regulatory body and the FCA regulate from a perceptive of competition efficiency as opposed to just asking if the rules are being broken.
It was that competition capability that the FCA has that led it to ask the CMA to get involved in the investment consultant sector.
Auto-enrolment has been a big success so far. As the founder of Friends of Auto Enrolment you must be happy?
Auto enrolment is a success so far. It is a pragmatic solution to a real problem. The real problem is that encouraging or motivating someone to save for the long term is difficult.
You are talking about deferred gratification. It is an intelligent thing to save for the long term, but it is not easy; there are always competing pressures on money. It is also quite an un-natural thing to do. Human beings are unusual as a species in wanting to save for the long-term.
It is a challenge that is difficult to overcome. That has been proven by the pensions industry for decades. The solution, of course, is to capitalise on the inertia in the market. That is what auto enrolment is all about, but we must not fall into the trap of getting complacent about it.
There are reasons to be concerned about what might happen with opt-out rates when contributions go up. There are reasons to be concerned about potential claims for mis-selling, due to the net pay versus relief at source approach to tax relief on such schemes.
There are reasons to be concerned about the fact that all the data we have at the moment about compliance rates is based upon the employer completing a declaration of compliance.
