As both an intermediary and a wealth management firm, we have two compensation levies to pay in relation to the total losses suffered by investors in Keydata products that were backed by investments in Lifemark, a Luxembourg Special Purposes Vehicle set up by Keydata. The bill arrived last week. Like everyone else, we had no idea how big it was going to be – 2% of revenues in our case.

The fact that consumers should be compensated against fraud and misselling is not at all objectionable to businesses, unless we are really myopic. We benefit from not having to carry capital to meet liabilities that are better pooled between us, and from not having to build, as our Victorian forebears did, grand temples in the High Street to indicate our financial strength and respectability. Kafka was not in the principle, only the implementation. 

My initial focus was on getting my head round when a product provider is (for compensation purposes) actually an ‘intermediary’ or agent and why product literature is not an integral part of a product when testing for product failure. Moving on, we had to start thinking hard about how many other structured products that have proliferated under the eye of the FSA might similarly now represent a potential compensation liability for our type of firm, rather than for product providers. We have to do this, as part of our required stress testing of capital adequacy. But coming to terms with our ‘loss’ seemed to need something else. By the week end I was really keen to understand how the eligibility to compensation was itself determined, even before the question of how it was allocated.  

Easier said than done – even with Google. I was exasperated by the lack of a clear narrative from the FSCS or the FSA about the Lifemark-related products. I wanted complete information, not little glimpses, that would satisfy me as an explanation of:

1. How the product literature gave rise to claims (other than in respect of the ISA issues already addressed by eligible claims)
2. Why the liability resulting in a legitimate claim to compensation lay with Keydata alone
3. What precise form the liability took (had the company not been insolvent would they have had misselling claims, or was the product failure itself covered by the FSCS?)
4. Exactly which products are covered by this claim – the applicability by categories listed by FSCS appears to relate to the tax liability issues, not the Lifemark failure as a whole.

The FSCS stated on 28^th September 2010: ‘We are satisfied that the marketing materials produced by Keydata to promote the products did not comply with the Financial Services Authority’s rules.  This means that Keydata may owe a legal liability to investors in these products, allowing us to pay compensation to anyone who is eligible under the FSCS’s compensation rules.’ Well, actually, that doesn’t satisfy me. 

Misselling

Is this a liability to put the investors back into the position they would have been in before investing, which (conventionally) ignores the performance of the product and looks only at how it was sold? I’m guessing it is, because the loss of value itself in the Lifemark bonds was explicitly ruled out by the FSCS as being protected. It also makes more sense in terms of the FSA’s directions to the FSCS (upheld after a judicial review) that the regulated activity involved was a distribution activity, not a management activity. The basis of the claim then looks like what we are familiar with as ‘misselling’. In this particular context, the only difference appears to be that it applies to all classes of investor, requiring no test of suitability case by case, as misselling usually does.

I can see why a failure in product literature might be a basis of a claim to FSCS compensation if it is because the provider is no longer around to sue (or refer to the FOS). But is that really what makes this an eligible claim and is that really the reason why it lies with Keydata rather than, say, the firms that gave advice on the strength of the literature, without adequate due diligence of their own? I would like to see that spelt out.

The obvious next step was to look to see what the failings in the literature were that would have made these products universally unsuitable.  The FSA and FSCS don’t appear to have given any more details so I had to look at the offering documents myself. I wasn’t just looking for the mistakes about whether these were ISA-eligible, which we already knew about (and have already paid the FSCS so it could pay HMRC). I read one of the documents and would merely observe that it is not self-evident in what respects it was non-compliant, let alone why that might lead to universal unsuitability. I am not surprised, though, because if it was that obvious you would have expected some professional reader to have commented to the press or even to the FSA.

A detailed explanation would allow us to form a judgement ourselves as to whether the liability is really universal to all investors, regardless of how they bought (direct or through a regulated advisory firm) or whether the product literature failings rely on the assumption they were being read by a direct investor, not a professional firm. We might be expected to think this distinction matters because the claims might otherwise be made against the advisers rather than Keydata and reach back to professional indemnity insurers (or even be met by fines raised by the FSA from advisers at fault). After all, we know a high proportion of these products were placed by a very small number of firms.

Product failure

Materiality would be important to our respect for the process leading to the levy. For instance, was a decision made that the underlying life insurance contracts were inherently unsuited to generating an income stream, as the product structure required? That would be pretty material. But it would also be quite different from the explanation given by Lifemark itself that it got the actuarial assumptions wrong – which sounds a bit like errors in investment assumptions, which we know are not covered by compensation.

Generic unsuitability, which sounds much more like product failure than literature shortcomings, would also imply that the FSA had plenty of opportunity to review this form of investment structure and deal with it generically, not necessarily singling out Keydata. Is the lack of explanation a cover for embarrassment, perhaps? 

Allocating compensation

Though the focus of my questions, and search for answers, shifted over the past few days from the basis of allocation of the levy to the reasons for the liability itself, I have not lost sight of the allocation problem. I find it difficult to respect the FSA’s current procedures for determining apportionment, which are by narrow reference to the function being regulated where a firm has separate permitted business activities. Those different functions have origins and purposes that were designed for reasons unrelated to liabilities for compensation. When applied to product liability, they appear counter-intuitive and counter-factual. Judging by the outrage from my peers, they clearly do not command the respect of the industry generally. That is unhealthy and has to be addressed.

I realise that any new procedures will need to take into account EU developments, as we are impacted by changes the EU wants to see made to compensation arrangements. But it would be helpful to see a statement from the FSA that it at least recognises the present reliance on distinctions between separate regulated activities may not be fit for purpose.

The discussion paper, which came up on the website later yesterday, is surprisingly underwhelming considering the FSA has been quite frank in its self-assessment of its past ability to anticipate and head off sources of what regulators refer to as ‘consumer detriment’. You might think that the lessons learned from episodes of failed products that mostly occurred long enough ago to have prompted my book in 2002 would already have informed regulation (or request for new powers).  So is this really a revelation?

My analysis then was that there had been excessive reliance in both self-regulation and regulation by the FSA on sales process rather than product design. The first Financial Services Act followed the Gower Report in 1981, which had been set up in response to instances of fraud rather than misselling or generic product failures. Yet Professor Gower’s main recommendation, to focus on product design, was rejected in favour of focusing on sales process. I would not go so far as to say this was the wrong choice but rather than the idea of two alternatives was wrong. The two are, in most cases of consumer harm, inextricably linked.  The effect of emphasising process was that the FSA was always behind the curve in anticipating, from product analysis, what the next widespread abuses would be. My view was, and still is, that a lack of cuteness about product design is the FSA’s Achilles heel.

In the FSA’s new discussion paper there is a definite nod to the idea that problems of design and distribution go together. An obvious recent case in point is Payment Protection Insurance. But its analysis of past failures lacks insight into the connection between design and distribution at the heart of several of the big generic product failures , including for example, with-profits generally and mortgage endowments specifically.  

It is impossible to isolate the theoretical merit of actuarial ’smoothing’ of maturing policy payouts to moderate outcome uncertainty from the practical context of manipulating payouts in the presence of marketing pressures, usually around competing on past performance of standard maturing policy types.  The actuarial theory itself  was flawed, ignoring the way deviations from long-term trends themselves trend rather than reverse quickly, which was a product design flaw. But it was the combination of both imperatives to over-distribute that led to later consumer disappointment.  When with-profits policies were used to fund mortgage repayment, the flaw was not just in the generic design of the underlying product but the setting of premiums at a level based on past mean returns that therefore only afforded a 50% chance of meeting the objective, or even less if inflation was to moderate. Is that a product design fault or a sales process fault? I think that is a misleading distinction, as the premium is an integral part of the product, set by insurers,  but distributors also needed to ask customers how certain they wanted to be. In most cases, given the need for the money and consequences of a shortfall, the answer to this question would have precluded the use of this product.

The FSA paper also harks back to the scandal of banks creating and distributing Structured Capital at Risk Products (SCARPs). One type, known in the market by the telling name of Precipice Bonds, was widely sold to the wrong investors. But you will not read anything here to suggest that, had the FSA examined the underlying option, it would have been able to identify as soon as they started to appear that they earned their high yields by selling catastrophe insurance. Why would little old ladies who normally need to buy catastrophe insurance  (because they cannot afford to take on low-probability risks with high impact) suddenly start providing that insurance to investment banks on the other side of the contract? Supervising the sales process required (but lacked) insights about product design.

As an example of how I was reading this paper and just not seeing what I hoped to see, I was struck by one of the examples in the paper of the FSA stopping a possible source of consumer harm (page 33). A  building society had come up with the innovative idea of selling structured fixed-term deposits with inflation protection. The inflation risk was fully hedged so it represented a new source of nominal deposits for the bank, diversifying its liabilities. It brought to consumers a really useful ‘real money’ instrument in a market otherwise restricted to National Savings & Investments. So what did the FSA do that stopped possible consumer harm in its tracks? It told the building society not to use the ‘misleading’ illustration for nominal returns it had chosen, which assumed a particular inflation assumption drawn from historic observation, but to use a lower one. It is almost irrelevant to point out that the building society had originally selected the same basis as NS&I used in its illustration, as I happened by chance to know (but the FSA does not mention). Some harm, considering the illustration has virtually no significance for selection anyway compared with the real return!

In this example, the obvious consumer risk that was different from that of a fixed-term bond is that the counter-party was an investment or commercial bank that provided the inflation swap. Now that is an important piece of information for consumers to know about, so they can consider whether they want to lend money to a UK building society or an investment bank like, say, Lehman.

I mention this of course because counter-party risk, inherent in an increasing number of product structures, was an accident waiting to happen. Again, I think the distinction between product design and sales process is somewhat unhelpful compared with the way the critical insight for the FSA would (should) have come from product analysis.

Where the FSA is on stronger ground is in identifying the role of perverse incentives, such as sales targets and bonuses, in misselling. I have no doubt that this is at the heart of the large number of upheld complaints to the FOS about unsuitable sales of (often) investment products by high street banks. Yes, it has identified the problem. But surely it has always had the right powers to deal with this. Where this lack of insight for so long came from I cannot quite figure. But it makes the rest of us mad because we might not have been able to prevent it rubbing off on retail advice firms generally. It makes us mad because RDR, welcome though it is, will bear least of all on banks.

I am sceptical of the FSA’s sudden conversion. But if it is real, it will need to be a lot cuter about product design and the connections between design and distribution than it has been in the past, otherwise it will continue to be outsmarted by the smarts in the product manufacturing world. It says (in this paper) that it has recruited with this in mind. That is good to hear. Unfortunately, everything we read from the FSA about process suggests there is still a simplistic understanding of the product world, so it makes false distinctions (black or white where it’s really grey) and misses the really important distinctions. This was a theme of my response to the FSA’s current guidance consultation on Assessing Suitability and it will be a theme when I get round to responding to this consultation too.

Though promted by regulatory developments which are likely to be mainly of interest to our peers in private wealth management and financial planning, our explanation in this post of how we think suitability of structured products for individual clients can be assessed is relevant to both professionals and serious private investors who have used structured products, as alternatives to either deposits or unhedged risky asset exposures. We welcome observations if readers disagree with our analysis.

It can be used by financial journalists as background briefing on structured product issues as well as specific commentary on the FSA’s review of weaknesses in advice processes.

The specific regulatory issues we highlight in this post tie in with a No Monkey Business theme (originally aired in my book) that UK financial services regulation has consistently failed the public by focusing on processes at the expense of products, a message we hope both peers and the media will support. It is advisers with an umblemished record who end up paying every time the product manufacturing industry screws up and I am sure we are not alone in running out of patience with our regulator on this one.

Another case of missing product regulation

Two recent publications by the regulator suggest it has never understood the consumer protection issues around structured products which have limited or complete capital protection and use options to provide the return potential.

Last week the FSA published a report of its investigations of weaknesses in advice processes when firms promoted structured products with capital guarantees. This investigation follows the collapse of Lehman, Keydata and Arc.

Reviewing about one third of the firms that were heavy promoters of structured products to private clients, the FSA found the customary failings in record keeping that crop up in any review when product distribution goes wrong. But we are mainly interested in those it singled out that are specific to these products: faults in suitability assessments and risk disclosures, notably widespread failure to explain the counterparty risk associated with the capital guarantee. There is not much sympathy for the fact that complex and innovative products are bound severely to test advice and distribution processes and systems.

In a different context the FSA addressed structured products in June, with the publication (CP09/18) of its final consultation paper on the Retail Distribution Review. In its guidance to its proposed draft rule COB6.2.A10 G for testing whether an adviser’s status in a ‘relevant market’ is ‘restricted’ or ‘independent’, the FSA said this (2.8):

‘One of the challenges for independent advisers will be to ensure they have sufficient knowledge of all types of products which could give a suitable outcome for their clients. The rules do not mean that we expect to see all advisers recommending products such as structured investment products, for example, as a matter of course. But we would expect that if a structured product would best meet the client’s needs and risk profile, then an independent adviser should have sufficient knowledge of these products to be able to recognise this and make a recommendation to buy this product.’

Along with many other wealth managers and independent financial advisors, we were appalled that the FSA seemed to be arguing that structured products were to be considered prima facie as a suitable solution in a retail market where most (if not all) alternatives have no principal risk (or risk is practically eliminated by diversification) and have no optionality or asymmetric payoffs.

Principal risk and optionality are the two key attributes that raise consumer protection issues for product structures that are positioned in the market as low-risk. As my book pointed out, we have a long history in the UK of product failures where the products were designed to improve returns relative to simple deposits while disguising the risks. If it was true in 2002 that consumer protection regulation should have heeded the Gower Commission’s original recommendation to focus on products not sales processes, it is surely now self-evident that we would have avoided many if not all of the problems caused by product innovation by clever investment bankers. It is of course patently true of banking markets, where the FSA failed to anticipate problems caused by the structured loan products.

The Treasury is also to blame as it has used National Savings & Investment’s Guaranteed Equity Bonds as a source of cheap finance without regard to the public’s poor grasp of option bets.

Counterparty risk
There is no excuse for a distributor failing to understand or point out the risk of a counterparty failing, whether it is as simple a product as an annuity or as complex as capital-guaranteed or capital-at-risk structures.

That said, I am sure the risk of a principal failing does not always get attention drawn to it when an annuity is sold, just because it is several decades at least since an insurance company failed to meet its liabilities to annuitants and centuries since insurance companies took over writing annuities from governments after the latter started defaulting on their obligations. Advice about principal risk also looms as a major problem for the FSA in respect of final salary schemes, when pension benefits exceed the protected level of just £30,000 pa. There is an overwhelming case in finance theory for reducing this uncompensated idiosyncratic exposure but also a very strong regulatory bias against advising transfers.

The nature of capital guarantees is particularly opaque in structured products. The products were created and distributed by issuers who are often household names but many buyers are (or were) probably not aware that the guarantee is not ususally provided by the issuer but by a completely separate commercial bank or investment bank, often less well known than the issuer and in many cases located abroad.  I believe in some cases the identity of that counterparty was not even disclosed in the product literature.  It needed no special insight by the FSA to see the case for explicit and prominent exposure warnings being prescribed in the product literature , so as not to be dependent on the adviser’s sales process.

Principal risk is managed by exposure limits or diversification. But (unlike equity and bond markets) it is not practicable in product markets (or contractual savings that are not completely covered by compensation schemes) to diversify all the specific principal risk. It is also unreasonable to expect consumers to avoid all principal risk. It is necessarily therefore a matter of judgement what exposure levels should be retained.

If this is a risk properly managed by exposure limits, what is to stop almost anyone from complaining about the sale of a structured product (or perhaps several based on different underlying risk assets, with different issuers) which exposed the customer to ‘excessive’ credit risk on the same counterparty?

Unless there is a systemic review process like pension misselling, all such unresolved complaints have to be handled individually by the Financial Ombudsman Service. Even when systemic patterns emerge, as has been the case (for instance) with the widespread sale by banks of non-deposit based investment products to their own risk-averse depositors, the FOS cannot avoid its obligation to consider every case on its own merits.

What, then, should be the FOS’s basis for assessing appropriate levels of undiversified credit risk exposures to financial institutions and how will it ensure it commands the respect of both the industry and the advisers? If it looks at each individual’s past experience of holding uninsured credit exposures, which is a reasonable basis, the chances are (like my annuity example) it will find no precedents to use because so few packaged products introduce this risk.

Understanding optionality

The FSA review hardly refers to the attributes of option-based structures that pose particular problems for assessing suitability of advice. Either they are being disingenuous or they do not understand the issues. The comments in the RDR consultation paper quoted above suggest the latter.

One of the advantages of product regulation, whether as a licensing process before innovations can be marketed or as thematic reviews when new products start to be widely marketed, is that it requires structured products to be looked at from the manufacturing point of view, breaking the structure down into its active ingredients. Many of the structural features will turn out to be common to a broad range of structures and, if there are marketing issues posed by them, they will be common to all.

The typical five-year ‘capital guaranteed’ equity index structure, for instance, can be emulated by, or actually consists of, a five year discounted bond plus a five year call option on an index which is the underlying assets on which the option is taken out. It is only because the bond is discounted (as in £80 invested pays back £100 at maturity) that there is cash available from the total investment to pay for the option and the structure costs. The payoffs of the structure can be replicated with swaps or put options but the easiest way to understand the structure is a discounted deposit combined with a call option.

It should be clear that the if the investor would not, outside a product structure, choose to apply the money represented by the deposit interest to the purchase of an illiquid call option, then clearly it is difficult to justify the product sale. Unfortunately, that is not how the choice was presented.

If the full amount of the invested capital is guaranteed by a counterparty, then only in the narrow sense of staking income rather than capital can the payoff impose an investment loss, as opposed to loss caused by the failure of the counterparty to honour its obligations.

If the capital is underwritten at less that 100%, it is termed a SCARP, or structured capital at risk product. Nowadays, capital at risk is typically limited to about 10%. The purpose of risking a bit more capital is to provide more optional upside participation. There is nothing fundamentally different between a capital protected and capital at risk product except in terms of this narrow distinction between capital and income.

(This is different, note, from the SCARPs that blew up spectacularly in the 2000/03 bear market: precipice bonds. These left capital exposed to losses only if the risk asset on which the option was written fell by more than a particular level. Often the risk in the structure was then leveraged, so that the capital eroded at twice the rate, in many cases, as the underlying. Viewed through the eyes of the counterparty, this structure represented the sale of catastrophe insurance, as it laid off its exposure to extreme loss in the underlying. Though extreme outcomes had a low chance of arising, the consequences were enormous. That meant the option cost was lower and the upside participation for the buyer looked much more enticing. It was also a smokescreen for increasing the cost taken out of the structure by the issuer, counterparty and distributors. This was clearly unsuitable for the customers who typically provided that catastrophe insurance to financial institutions, such as little old ladies popping into their local branch of their bank.)

I regard the distinction between capital and interest implicit in option-based structured products as being one that many customers would instinctively treat as specious. They are right: it is just money. The regulatory framework effectively reinforces a non-economic distinction between the components of money, as between capital and its rental cost. This is exactly the sort of  semantics smart but conflicted agents will seek to exploit.

(The distinction between income and capital does have an economic dimension because of the different tax treatment of income and gains; the FSA chose to refer to this in its review but it misses the point that the tax treatment is part of the bet and cannot be treated as an independent test of the suitability of the bet.)

The structure is usually illiquid so the payoffs are specific (barring particular features or ‘bells and whistles’) to the level in, say, five years rather than at any stage within the five years. This is also a characteristic of most structured products that the FSA highlighted in its review, applying a narrow test of whether the customer could afford to tie up cash for the term of the structure. This will also be difficult to assess after the event if complaints are made.

Suitability of optionality

What might represent a logical, hindsight-free test of suitability of an option for an individual saver or investor? I think the answer is very limiting: a specific view at a specific time with a specific cost and a specific probability distribution for the payoffs.

In other words, it has to be a specific bet. But here is the key insight. If we assume that option prices are generally efficient, which for the regulator has to be the only safe assumption, it is a form of bet that becomes irrational if rolled over across serial structured products to become a permanent alternative either to cash or risk assets. It becomes irrational for the same reason that any form of permanent ‘portfolio insurance’ is, before the event, likely to be self-defeating, namely that the cost of the downside protection is likely to be equal to the cumulative payoff before costs. This follows because i) option prices are based on volatility and ii) risk premiums relative to cash are also a function of volatility.

Of course people value options, particularly when at no cost or very low cost. In such cases, they need not even have a view about the underlying. But if they (or their advisers) believe they have no good basis for arguing an option has been seriously mispriced, they implicitly need to base their bet on a specific view of the underlying.

In fact, for much of the period in which capital-protected structured products exploded in popularity, it was possible to argue that volatility in equities and option prices were both unusually low. These were probably circumstances associated with excessively lax money and credit growth which of course ended with the banking crisis (to which these same factors had contributed so much). For much of this period when volatility was low so was the interest rate given up, so the upside participation was also less. Taking both factors together, pricing was arguably a reasonable basis for some wealthy clients to add optionality to their cash deposits, particularly if they were high income tax payers, for as long as these conditions persisted.

I do not believe most products were sold on the basis of specific views of pricing inefficiency or of the underlying asset, except perhaps in private banks and wealth managers with sophisticated clients. Instead, I think they were mainly sold to risk-averse savers and investors as a permanently suitable alternative to deposit-based savings. Logically, these are the people to whom the non-economic distinction between capital and interest is most important, as they can least afford to lose the economic rent on their capital. This is not just because they are financially constrained but because the rent has to provide their inflation compensation.

However, it is also likely that they were promoted to many investors with high enough risk tolerance to have exposure to risky assets, particularly if they have long-term financial goals that are expressed in purchasing power terms, after inflation. For these investors, substituting unhedged exposures to real assets by hedged exposures with very low probable payoffs was unlikely to improve their welfare or utility. Comparisons of hedged and unhedged exposures are also sensitive to the difference between the two in terms of liquidity, as  most structured products have in the past required giving up the ability to alter exposures with changing asset prices as few provided reasonably liquid secondary markets.

Advisers substituting risky exposures with hedges in conflict with the client’s ’normal’ risk preferences were also singled out by the FSA but this looks an improbable target for enforcement. Advisers will probably argue that they realised at the time that the conditions that caused the low option costs were also ones that risked blowing up the economy, so the downside protection was a logical bet even if normally they would prefer unhedged exposure. Hindsight is a wonderful thing.

Conclusions

The FSA’s review appears to provide an incentive to customers holding illiquid structures which are currently unexpired but out of the money, or which previously expired out of the money or with very low returns, to challenge the advice given. Even without problems assessing advice after the event, this is a potentially horrendous burden for an already overworked complaints process.

I do not believe the FSA’s review provides customers, distributors or the FOS with a logical basis for assessing suitability except in extreme cases where a direct stipulation was breached and the breach was in genuine economic terms, not specious technical terms.

The obvious conclusion to draw is that the generic attributes of option-based structures, genuinely highly complex in terms of utility theory, needed to be addressed by the FSA when structured products became popular, not when the first counterparty happened to fail.

The FSA has also had years to decide that the sales process should have included estimates of the probability distribution of the payoffs, so that customers could see that most outcomes were bunched around zero or a small gain and that their ‘target’ or headline return had only a tiny chance of being achieved. Without it, issuers and distributors had an information advantage they could exploit.

Under the leadership of Lord Turner the FSA has had the humility to suggest that maybe product regulation is necessary and should not be ruled out. Was it asking too much to see some of that humility in this review?

Finally, the FSA should restate its position on structured products in the context of tests of independence when RDR takes effect in January 2013.

Bank of Scotland (744), Barclays (472), Lloyds TSB (293) , HSBC (167), and Alliance & Leicester (150) are the five biggest offenders. Large banks are bound to dominate just because of their size but if you sort the table provided by the FOS you will find that the rulings against them are also typically above 30% of cases dealt with.

Because of the dreadful delays in dealing with the backlog of cases, the resolution rates and the new case incidents do not match up. As the impact of weak stock markets is felt on complaints, the investment case volumes are likely to rise further and the successful resolution rates soar. Previous posts have explained how banks have systematically mis-sold risky investment products in place of low-earning deposits, including a case we have taken to the FOS.

A linked theme is the FSA’s attempts to raise personal skills, through new Diploma-level entry exams for the 70,000 or more advisers working with the public. But it isn’t directors and sales managers who will be spending the 300 hours or so to qualify themselves as advisers. Individual skill levels will not alone help and will merely exacerbate the immorality of the selling pressures placed upon them, if not accompanied by a radically altered board room culture in retail banks.

IFAs don’t feature in the FOS list but this is partly because it is limited to firms with over 30 cases. The independent sector is too fragmented to make this cut. But to the extent they have offended, they will be within the 10% of cases not covered by this list. Other data from the FOS has made it clear that independent advice has attracted proportionately fewer complaints than bank advice.

Ranking by the highest proportion of total cases resolved in favour of consumers, credit and general insurance dominate. But amongst them is one investment firm, St James’s Place Wealth Management, at 59%. Wow! As we have said before, this is one of the least understood entities in the marketplace.

With facts like these, you hardly need No Monkey Business to argue the absurdity of the footfall in retail investment services. Not enough trust? Too much, more like.

More depressing reading in Saturday’s Times: St James’s Place, the financial services retailer most misunderstood by its apparently affluent and educated customers, has chosen to takes its chances with the FOS rather than offer compensation to an 80 year old who lost £70,000 on an investment (also in a high-commission bond wrapper) of £216,000 (’the majority of her life savings’).

If the FSA can’t regulate misselling, why don’t the public? Shouldn’t reputation risk get the job done? Why it doesn’t is the most depressing thing of all.