Garry Heath: Aifa is trapped and must be reformed
The news that Aifa’s Stephen Gay is moving to the ABI puts the IFA sector in an appalling position.
The retail distribution review is arriving in December and academic standards, restricted advice, legacy commissions and simplified advice all remain unclear. RDR is a demonstrable basket case and yet Aifa maintains a doleful silence which has been criticised by the Treasury select committee.
The FCA gives the sector “a once in a decade” opportunity to rein in the costs and scope of regulation, sort out the compensation scheme, get a long stop and demand proper parliamentary oversight. Again Aifa flaps around the outside of the issue and the FCA will become a rebranded FSA – only more expensive.
There is an historical context. The IFA Association was Aifa’s predecessor. It had grown from local grass root groups of IFAs into a national organisation. It was determined to represent its members and ensure their voice and the voices of their clients were heard. As a result, IFAA was far more likely to side with the Consumers Association than the ABI.
IFAA also knew it didn’t have the establishment levers to win in the smoke filled rooms. Its members couldn’t threaten to relocate abroad, we did not have the establishment contacts and neither could IFAs offer well paid jobs to regulators, civil servants or ex-ministers.
We had one great asset, a membership used to talking for a living, so we were able to use them to influence MPs. This use of the democratic process really annoyed civil servants as they could not control it. We objected to the excesses of the pensions review taking SIB to a judicial review which tied their hands.
In canine terms: whilst the BBA was a Great Dane and the ABI was a slightly dozy Labrador - the IFAA was forced to be a Jack Russell – bouncy, rather noisy and likely to administer a nasty bite if ignored. As its Director General; I was often pictured as this “larger than life” ninja creature. Useful at first; this caricature became a burden. The reality was far less newsworthy and far more practical.
We were totally supportive of the reformed FIMBRA. We blew the whistle of dishonest IFAs. We worked together with the Consumer Association on disclosure. We developed a huge number of contacts in the media and in Parliament and that gave is another form of influence. As a result polarisation was untouchable, commission was disclosed but available and the sector’s market share improved by over 15 per cent.
Our approach was transparent and democratic. If the Treasury, banks or the providers wanted to do a back door deal they knew that IFAA would blow the whistle. We kept the process honest and the powerful on the back foot. This was beneficial to consumers and advisers alike. We also had a clear view of how we wanted the sector to develop.
IFAA was too democratic for New Labour and they joined forces with the ABI to attack us. Their new association; Aifa would play the establishment game, never ever confronting the powerful and drawing its primary funds from the ABI & networks. From the outset it was heavily funded by the ABI who paid over £300,000 for its creation. It hoped this pacifist approach would give results.
In a stroke Aifa was trapped in the system. It had thrown away all its bargaining tools, any chance of surprise and over time its income.
So where are we now? Aifa has no agenda for the sector and no way of promoting one if it had. It sees its task as mitigating disasters at the margin - not fighting for IFAs and their clients. Small IFAs look upon it as a joke. It is dominated by networks, most whom are owned by ABI members and have a different agenda to smaller IFAs.
The Aifa income figures also tell the story. ABI “associate members” represent in excess of 20 per cent, Networks, wholly or partially owned by providers, represent another 57 per cent. This leaves around 20 per cent funded by smaller IFAs.
By rights it should be completely reformed; but those IFAs who would create the pressure for this have left Aifa. Neil Liversedge, in a statement of the obvious, said that Aifa’s detractors were not in membership. Wonder why eh Neil?
A new association is unlikely as RDR will kill off between 20 – 40 per cent of IFAs who might have funded it. The Aifa board may appoint a real leader and IFAs could pile into Aifa membership in the hope of reforming it or the ABI could make it a subsidiary which would reflect the reality.
Garry Heath is former director general of the IFA Association