Changes in regulations shouldn’t be an incentive for financial services companies to extract extra profits from customers. And yet, we continue to see it happening – so how do they get away with it?
We live in a world where financial services companies invest a lot of time and effort in trying to increase their bottom line, and not nearly enough in delivering good results for customers. As a result, a growing book of regulations has become a necessary evil.
But while new regulations can help tame some of the industry’s worst excesses, new rules often bring new dangers along with them.
The latest ‘opportunities’
At the end of 2012, two significant changes came into force. On 21 December, the Gender Discrimination Directive banned insurers from taking the gender of their customers into account when offering them a quote. A few days later, the Retail Distribution Review (RDR) banned financial advisers from accepting commission for selling investments.
While the gender rules were designed to create an even playing field – bringing potential benefits for both men and women in different insurance markets – the industry was quick to use the opportunity to increase prices for many.
We’ve observed similar opportunism in the financial advice market as a result of the RDR, where some product providers have kept the same higher charges in place, even though they no longer have to pay commission to advisers.
The rulebook won’t stop growing
In an efficient market, I don’t think companies should be able to exploit rule changes this way. But in the financial services industry, there are no major distributors to help bring prices down. The financial advice market is fragmented, and advisers have less power to challenge big companies to reduce their prices.
This means there’s a greater responsibility on firms to play fair with their customers – but this rarely happens. And if businesses don’t put their customers’ interests first, more regulation will follow. By jumping on a regulatory change as a chance to squeeze their customers a little harder, I think they’ve proven they’ve got a long way to go yet.