As a holistic financial planner dedicated to making things better for clients I am largely in full support of what the FSA are trying to do, in order to provide a better financial services industry for the UK. However whilst at a recent ICAEW event, I heard a really good analogy about “good intentions” (we were discussing some unintended consequences of new rules). It isn’t mine and I make no apology of pinching it from Les Cantalay who has done a great job and gave a very good talk. Anyhow, he showed a picture of a ship “The Eastland” (which was launched in 1903) in the docks and then another a couple of years later showing her  capsized whilst in the Chicago docks, having just taken aboard some 2,500 passengers and looking rather like a picture of the current Costa Concordia disaster, which, in terms of loss of life, looks mercifully insignificant by comparison. The reason for the capsize? well it turns out that following the sinking of the Titanic (which will have been 100 years ago on 15th April this year), new regulation meant that ships had to carry more lifeboats (Lafollette’s Seaman’s Act, 4th March 1915). Within 4 months, The Eastland capsized as the new lifeboat regulation made her too top heavy. Passenger deaths from the Titanic: 818 – from The Eastland: 844. A huge loss of life, mainly women and children and largely an unknown disaster.

Yesterday, it was announced that the new regulator (that will replace the FSA) will have the power to ban financial products without any consultation. Whilst on the face of it, this does appear to be a good thing (when products are frankly “a load of rubbish”) this sort of action can lead to chaos as those stuck in the products cannot easily exit. It would be far better to have clear guidance and rules that financial products must follow to be available. This might mean requiring pre-approval from the regulator before a product is launched (though this would likely lead to bureaucracy and delay as well as possible loss of competitive advantage). However, I would argue that this is probably better than having a class of products that are unregulated which advisers must be at least “considering” to retain their “Independent Financial Adviser” status from 2013 under the new rules. I can only foresee yet another avoidable disaster.

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