July 2018 was the 13th anniversary of one of the most exciting product launches I have ever been involved with: Provident Life’s Gold Pensions range. (Provident Life changed its name to Winterthur Life in 1995 and was subsequently acquired by AXA).
At the time the product launch was radical and arguably years ahead of its time. The Gold Pensions products bore no commission and had explicit fees.
The market at the time thought the products were ill-conceived and the aggressive promotional campaign drew huge criticism.
Rewriting the rules
A year later we adapted the product range and relaunched it as bespoke pensions with a flexible remuneration facility. This was more successful and encouraged us to keep plugging away.
In the early 1990s we attempted to force further market change by providing a guide for advisers on the effect of charges. We did this by analysing the reduction in yields on personal pension plans as a result of the charges levied.
We also agreed with a trade magazine to sponsor a supplement that included a table of projections for personal pensions on an own charge basis.
Unfortunately the ‘establishment’ did not take kindly to this type of transparency. A competitor reported us to our regulator at the time, the Life Assurance and Unit Trust Regulatory Organisation (Lautro), arguing we were effectively providing illustrations on an own charge basis contrary to Lautro rules.
Those rules at the time required illustrations to be done on a standardised charging and investment return basis, making comparison of the effect of charges virtually impossible. We were banned from distributing the guide and were only able to distribute the supplement to advisers if they paid a commercial price for it. Few copies ever saw the light of day.
The purpose of this tale is to show that financial markets, and the regulation of those markets, change over time. Frequently the regulator has difficulty keeping abreast of those changes and is slow to respond. This was certainly the case with own charge illustrations.
More recently there have been similar issues with pension transfers. In my view, the regulator has been slow to respond to the significant changes in market conditions and consumer demand. As long ago as November 2007, the Financial Services Authority issued a newsletter for advisers that contained the statement ‘we remind firms that the initial presumption with any pension transfer is that it is not suitable’.
That was followed in December 2008 by a thematic review on the quality of advice on pension switching, which confirmed ‘providers are not required to "police" the performance of individual distributors’. The ‘rules’ may not have changed since then but the financial environment today is very different.
For the regulator, another challenge is the extent to which its rules are applied retrospectively, or whether those rules have been or are changed in the light of external influences.
A good example of this is the principle of ‘caveat emptor’. This is a particularly topical issue at the moment in the Sipp world. A legal judgment (in the Adams v Carey Pensions High Court case) may shed some light on the extent to which conduct of business rules on treating customers fairly apply where an individual investor has selected investments on an ‘execution-only’ basis and then holds the Sipp provider responsible if the investment fails.
As someone far brighter than me put it: where is the line between genuine acceptance of risk and protection against stupidity?
The Carey case may also help determine the extent to which certain rules are deemed to have changed over time or whether it is just the manner in which they are applied that has. At the moment a Sipp operator’s responsibilities in areas such as due diligence on investments and introducers are far from clear.
There has been a lack of consistency in, for example, determinations reached by the Financial and Pensions Ombudsmen in this area, especially in relation to retrospective claims. Or maybe this is another example of ‘plus ça change, plus c’est la même chose’.