Hard Times


I hope Charles Dickens will forgive me for borrowing my title from one of his books, but it seemed to sum up the position some people will find themselves in, during this coming winter and beyond.

An FCA survey on borrowing, released in October, found 1 in 4 UK adults are in financial difficulty, or could quickly find themselves in difficulty if they suffered a financial shock, with 4.2mn already having missed bill or loan payments.

In addition, it found people living in the most deprived areas were nearly seven times as likely to be in financial difficulty compared to those living in the least deprived areas; with those in the north-east of England the most likely to be affected.

I was talking to a hospital nurse recently, who is paid under £11.00 per hour, out of which she must put a roof over her family’s head, and feed herself and her four children, along with the addition of the earnings of her eldest child, who is also on minimum wage. This struck me as very Dickensian.

Otherwise, those who simply look at the quantitative and financial aspects, while ignoring the qualitative aspects, might find the FCA sending them an administrative fine next Christmas, wrapped neatly in a Final Notice.

It is no wonder, with the current rate of inflation, that people like her are worried about where their next meal is coming from, rather than being concerned about the cost and benefits of financial advice. However, these are the very people whose families would be badly affected by a lack of life cover but are the most likely to not take out such cover or consider cancelling it to save money.

Back to Basics

As far as T&C is concerned it has now got truly diverse, with schemes being operated by mortgage brokers and lenders, as well as in the traditional areas of financial advice and wealth management.

There is therefore an increasing likelihood of T&C supervisors and managers having to assess cases where complex decisions need to be made by previously seemingly well-off households about cuts in expenditure. Clients may suggest the adjustment or cancellation of pension contributions or savings plans, as well as decisions on the cancellation, reduction, or rearrangement of important safeguards like life cover, critical illness cover, or income protection policies.

Uncomfortable conversations may be needed with those who see the latest mobile phone or their Sky Sports add-on, as being more important than contributing to their employer’s pensions scheme; or ensuring there is sufficient life cover to look after their family when they get run over while watching football on their latest piece of 5G wizardry.

For T&C supervisors and managers this may be an area that they have not dealt with in detail for years. Indeed, it forms part of the syllabus for the Chartered Insurance Institute’s Financial Services Products and Solutions (LP2) Level 3 qualification, so for those with Diploma level qualifications and above, parts of it may be a distant memory.

The other issue here is the accurate documenting of the advice provided, including advice not to do something, as well as any action to be taken. Documenting advice to a client not to cancel a life policy, or not to cease contributing to a pension is essential. This is not only for the client’s benefit but to ensure that the adviser, and the firm, can show they had done the right thing in the event of a complaint from a distressed wife, husband, or partner about the lack of adequate cover.

However, this may need a review of the relevant T&C documentation to ensure those undertaking supervision, are identifying these basic issues, as part of their activities.

This is necessary, because without a suitable aide memoire, it is possible some details might be missed. Indeed, since advisers may not often have been in this situation, there is a need to collect as much information as possible from meetings, so relevant feedback and training can be provided.

However, such aide memoires are not going to be foolproof, and supervisors will need to use lateral thinking, as well as their knowledge and experience, to ensure the best outcomes for consumers, advisers, and firms.

For the benefit of those who assert that they can create the perfect observation aide memoire, I would like to share something Douglas Adams wrote: “A common mistake that people make when trying to design something completely foolproof, is to underestimate the ingenuity of complete fools.”

Flawed Thinking

Another issue with the potential effects of the current cost of living crisis, is the actions financial services firms may decide to take to safeguard the future of the firm, during these challenging times.

This will be a combination of efforts to increase income, maintain profitability, and/or to reduce costs. We can all think of ways that firms can do this, and you may have experienced some, or all, of these already because of the pandemic.

However, decisions owners or directors of firms of all sizes take, when they consider they may be under financial pressure, can be flawed. They can hasten the demise of the firm, or invoke the wrath of one or more regulators, with associated penalties.

The first of these is the area of cost cutting, where the most expensive of the firm’s assets, its human capital, comes under the spotlight. The question then is, where should any cuts fall?

There is an inevitable focus on advisers as part of this process, with overall profitability often being key to a decision to use performance related issues to push poorly performing advisers out of a business. However, this then involves attempts by firms to replace the income they did generate, by recruiting new colleagues to fill the role. These new entrants will then need to be taken through training and the T&C process to achieve competent adviser status, before they can be anywhere near fully effective.

Unfortunately, at the same time firms looking for cost savings also look at administration staff and compliance staff as fair game for efficiencies. This always surprises me as who is going to train and support the new recruits until they reach competence, and who is going to provide them with the administrative support they will need?

The other problem those in charge of businesses sometimes fail to consider, is the effect of such actions on the compliance standing of the firm. This includes the level of complaints it receives, along with the cost of any compensation payments, as well as the negative effects of coming to the attention of the FCA, or other regulators.

On that note, you may have followed the FCA’s activity on the framework for protection provided through the Financial Services Compensation Scheme (FSCS), following concerns about increasing costs, and seen their recent feedback.

This confirmed the FCA is already taking action to tackle the root causes of high redress liabilities and to crack down on problem firms as part of its consumer investments strategy. They also plan restrictions on firms to prevent them from promoting or selling certain products and services.

Commenting on the FCA’s feedback the FSCS Chief Executive, Caroline Rainbird, said “It is clear from the feedback that FSCS continues to be seen as an essential safety net, and that removing protection from consumers is not something there is much appetite for. Instead, there is consensus that we must focus on improving conduct in the market and this must be the primary goal.”

The message here therefore is quite clear, there are still firms in the marketplace that do, or will, cause problems for consumers, regulators and their fellow FSCS levy payers, and tolerance will be more limited.

So perhaps those who are considering the cost effectiveness of parts of their business should also work out what elements help to meet their regulatory requirements, effectively forming part of their Fine Prevention Team.

Otherwise, those who simply look at the quantitative and financial aspects, while ignoring the qualitative aspects, might find the FCA sending them an administrative fine next Christmas, wrapped neatly in a Final Notice.


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Derek T Davies is a freelance Consultant,Editor and Writer

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