“What I am not prepared to do is to allow things to go on as if business is as usual because it is not as usual. The world is changing faster than it has ever changed and I am not going to let my members down.”
Aifa chairman Lord Deben is sat on the sofa next to his recently recruited director general Stephen Gay in the Green Park, London offices of the environmental consultancy the Tory peer also chairs. Aifa is a few weeks into its three month strategic review and the pair are keen to stress that retaining the status quo is not an option due to the radical reform set to be introduced through the retail distribution review and upcoming European legislation. The “root and branch” review is looking at all areas of Aifa’s work, with the first step to understand how the new RDR world will work and what advisers operating in this new structure will want from their trade body.
“We decided you could not do this in the old fashioned way of asking a few questions,” says Lord Deben. “So what we wanted was a proper review involving a great deal of individual and group consultation and seeing the best ways in which we can provide a better service to members, what is that going to cost and how we can best interact within the new structures.”
One obvious question to be tackled in the review is whether Aifa will broaden its membership criteria to include restricted advisers.
Lord Deben says many of the debates on restricted advice have failed to grasp the realities of the regulatory structure after 2012.
He says: “I was determined to say genuinely that I was not going to even consider this until we first of all have an understanding of the new system as far as is possible and then we say to ourselves what in this new system do our members want?”
Would the majority of Aifa members be happy for it to allow restricted advisers?
Gay says if the only role of a trade body was to count votes and take the most popular route, then it would not be needed. He says: “The point about being a trade association is you are gathering together a body of expertise that is able to turn opinions and knowledge into policy and to lobby on that policy. You need to pay due regard to the views of the membership but you have to work it through and consult through the due processes and this is the case with the strategic review.”
Lord Deben says he cannot remember a time when the Aifa board was forced to take a vote on policy and he is confident a consensual view can be reached. “What will be in our consensual view, I have no idea, I would not be doing it this way if I did. I hope we will be able to come to the same sort of exciting beginning as when Aifa first started.”
There has been some criticism that future policy will be unduly influenced by the demands of big distributors, many of which are represented on Aifa’s board. Lord Deben rejects such charges.
He says: “I will make sure the independent financial adviser is properly represented and properly protected. They can be absolutely sure the whole purpose of having an independent chairman is that I am not biased to the big or the small to the national or the network.”
The pair have a firm view over the misuse of the word “advice” – particularly in regard to the Government’s new Money Advice Service and the forthcoming FSA consultation on simplified advice.
Gay says the banks are looking to create a competitive advantage over advisers with simplified advice proposals. “I am not against simplified advice, what I am against is if it is designed in such a way that competitively disadvantages the full advice capabilities the IFA community has as its proposition.”
Gay says the branding of the Government’s Money Advice Service will spread confusion. “The fact they are calling it the Money Advice Service but then on the
website saying this is not financial advice is very difficult for the customer to understand.”
Lord Deben says: “The key bit of the word advice is the person giving the advice is on the side of the person getting the advice. It means the person who is asking for it knows the person who is giving it has no other interest apart from giving the best information he can give.”
He wants the FSA to rename simplified advice and suggests the banks’ hunger to use the word “advice” is telling. “They know if they can use the word advice, people will think they have been given something which is much more independent than is the truth.”
Will restricted advisers always be on the client’s side? Will they be the agent of the client? The pair both believe so, as long as the FSA sticks to its guns and carefully polices the new sector.
Gay says: “Everyone in restricted advice will have to have adviser-charging which means you cannot be remunerated by the person manufacturing the product. You have to be remunerated by the client, therefore you have no incentive, or should have no incentive, to shift that product.”
Lord Deben says independent advice will continue to be the gold standard but many people will not want to pay the sums required for independent advice.
He says: “We live in the real world and the number who are able to pay for that, or feel they are able to pay for that, is limited. Do you say if you cannot have the gold standard you should have no standard?
“If you can then say we can produce advice at a lower rate but it is still real advice because your only source of money is the customer, because you are clearly on their side because they are buying a product from you and you have no reason for selling them gloves that are a size too big.”
What if you are only selling certain-size gloves? “Well, then the customer knows you only sell certain-size gloves and if his hands are too big he will not come to you,” Lord Deben says.
And if he does, will he be turned away? Gay says: “Yes, and the restricted adviser must charge him anyway as their business is not to sell gloves but to sell advice.”
Will this happen in practice? The pair both believe so but only if the FSA is strong in policing its new rules.
In recent months Aifa has been subject to heavy criticism from advisers who believe it has failed to represent their views on the RDR.
Gay says this weight of criticism is coming from “a minority group” who wrongly believe they represent the majority view. He says: “Given Aifa’s opinion is different to theirs, they are drawing the assumption that we cannot be representing advisers and must be attacked.”
The current RDR proposals are still some way from what Aifa originally lobbied for. Has Aifa made mistakes in the lobbying process? Lord Deben says he would have liked the FSA to be more flexible on the current deadline and for the regulator to have been more consensual in introducing the review. But he says without Aifa’s lobbying, the RDR would be far more oppressive to advisers. “I think it is remarkable how different the RDR is compared with how it started off. If the Labour ran its party on the basis of the loudest noises it would never get elected and if the Conservative party ran its organisation by listening to UKIP it would never be able to do its job,” he says.
Lord Deben is keen, how- ever, to express his concern about the way the FSA is regulating the sector and how it failed to find a “reasonable and consensual” way of implementing the RDR. “It is self-absorbed and self-opinionated, it is much more aggressive than it needs to be, it assumes that people are not trying to do their best.”
Gay says: “I think the regulator is coming to understand that changing your style and tone in the way you communicate is necessary if the people you are regulating range from large corporate entities with big compliance departments to small IFA businesses.”
Lord Deben says the FSA has failed to take the appropriate blame for the costs of regulatory failure that have hit the Financial Services Compensation Scheme, such as Keydata.
Aifa has continued to call for greater flexibility over the RDR deadlines, although the FSA has been steadfast in rejecting this idea. Has the battle been lost?
Gay says he is not confident the FSA will relax its deadline requirements but it is important to keep pushing the regulator.
Lord Deben says: “I am just sad we have not learnt from this a better way of achieving a consensual form of regulation. I still hope in the last period of time the FSA will see there are huge advantages in appearing to be flexible on some of these things.”