Threats to Sustainability 

The FCA generally publishes its Risk Outlook around March of each year, so we await their new insights about the threats to the sustainability of our marketplace.  In the meantime, at ValidPath we continue to wrestle with the implications of a set of dynamics that, in combination, threaten to destabilise our profession - and wonder what may be done about it.  The cluster of factors that have existed for quite some time, now do seem to correlate so closely that we are mystified by the (apparent) lack of action by the FCA.  Here they are:

  1. The impact of an increasingly narcissistic culture upon the incidence of redress claims;
  2. A highly conservative (small c!) or cautious underwriting culture that, at the slightest hint of risk, will constrain PII cover;
  3. The all-critical "claims made" basis for PII cover;
  4. A largely unaccountable regulatory framework which implicitly endorses the new entitlement culture.
I would suspect that both FCA and FOS would exhibit an ideological disinclination to assent to factor (1), but I think it almost inarguable.  This is the Facebook generation, the 'Me Me Me' culture which obsesses over the taking of selfies, and over several decades has developed an almost pavlovic response to the sense of entitlement bred by the Welfare State.  Regulatory protections may have been designed to protect consumers against adviser and provider negligence or malpractice, but they have evolved in such a way that investors now feel that they do not have to take responsibility for their own actions and decisions.

Our experience over twelve years has been remarkably consistent in this respect: a minute proportion of claimants do have some sort of genuine case, but the vast majority seem to be driven by some misplaced sense of entitlement, usually pursuing their claim with a zeal and brutality that is in precisely inverse proportion to the validity of their case.  Our specialist PII Broker arranges cover for the widest possible range of business types (solicitors, accountants, estate agents, surveyors, architects) and this cultural change is affecting all of those professions.

Now my point is this (and it's not a terribly profound one) - once we establish Factor (1) as our broad cultural baseline, then without taking action, Factors (2) to (4) take us remorselessly in the direction of unsustainability.  As financial-planners, we seek to build investment models for clients where the asset components demonstrate, as far as possible, a low degree of correlation (in order to reduce or control risk) - but in this scenario we are exploring, these four particular factors exhibit a high degree of correlation.  Taking action on just one of them would therefore have a profound, and positive, effect on our marketplace - and I think it would not be difficult to make the case that the FCA could (and indeed should) be in a position to apply constructive input in respect of factors (2) to (4).

But (apparently) it is not.  Will we see a thoughtful, strategic piece in the 2015 Risk Outlook publication?  I for one am not holding my breath.

Further information for ValidPathers...

Logged-in Members can view our updated PII Information page, summarising the terms and conditions for 2015.
Kevin Moss, 23/01/2015