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Aifa: Should those who cannot afford gold standard have no standard?

Money Marketing editor Paul McMillan interviews the top two at Aifa as the trade body starts a wide-ranging review to consider its future strategy.

Lord Deben
Lord Deben: ’I still hope the FSA will see there are huge advantages in appearing to be flexible’

“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

MS stephengay
Gay: ’Everyone in restricted advice will have to have adviser-charging’

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.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. A totally irrelevant organisation led by two non-entities.

    How the hell did Gummer manage to qualify for clambering aboard this particular gravy train.

  2. Those who cannot afford can get free advice from the MAS.

  3. Steven Farrall (Adviser Alliance) 15th April 2011 at 4:10 pm

    Partly right, partly wrong.

    They are right about the pirating of the ‘advice’ word. This has been bastardised by everyone for years. And they are right that banks and direct product sellers are desperate to capture it for their own use ,and to confuse the client.

    They are wrong about the RDR, because the RDR is a fundamentally flawed concept. It is not possible for a small group of functionaries with limited knowledge and intelligence to set down a single business model. This is exactly what precipitated the banking failures. Markets are dynamic and knowledge is dispersed in society and people often do not know what they know. Hence any ‘research’ carried out by functionaries like the FSA will always be totally flawed. Furthermore the RDR is being introduced under coercion – ‘do what we say or we’ll close you down’. Ask Gay and Deben this. ‘Do you believe that any product or service should be delivered or paid for at the point of a gun?’ Clearly if they support the authoritarianism of the RDR they do.

    Lastly, having been in this business for about 25 years I have watched its developemnt and progress and innovation stifled by overweening and incompetent regulators who have created massive barriers to entry and a massive fixed cost base.

    Quite frankly the bulk of this article identifies Gay and Deben as part of the authoritarian problem, not part of the solution.

  4. He says: “I will make sure the independent financial adviser is properly represented and properly protected”

    If only that were true.
    We all know that if this was so, we would not be in the position we now find ourselves.

  5. All fine words and aspirations, but the fundamental problem is that the FSA takes little if any notice of anthing that anyone else says, least of all AIFA. And, as things presently stand, it doesn’t have to. Meetings with AIFA hosted by the FSA are nothing more than a bit of token engagement with representatives of the IFA sector but, in reality, nothing changes. If it did, then AIFA would be able to cite examples of issues on which it’s managed to win from the FSA concessions or modifications to its policy agenda. So just what has AIFA achieved over the past ten years? If we only knew, we might be able to have a little faith in the possibility of it achieving something ~ anything ~ from its current list of policy objectives.

    AIFA’s problem is that all it does is talk, talk, talk about the things it’d like to see happen, yet none of those things ever actually do happen. So what’s the point? Talk is cheap.

  6. It must be rather depressing for Mr Gay or one of his lieutenants to have to open every debriefing in the wake of AIFA’s meetings with the FSA with the words: “Well, as usual, the FSA didn’t give an inch of ground on that one. Any ideas, anyone, as to what we try next?”

    The “status quo”, as Lord Deben calls it, is that the FSA is completely unaccountable to anyone or any body, hence it takes no notice of any representations made by AIFA (or, to be fair, by anyone else, even the TSC). Therefore, the centrepiece of any new strategy has to be to lobby Parliament for the creation of an Independent Regulatory Oversight Committee with the power of absolute veto over initiatives and activities on the part of the FSA, the FOS and the FSCS which are manifestly contrary to the spirit and/or the letter of the Statutory Code of Practice For Regulators. The statutory framework is there, and statutory means that it’s the law. Given that its efforts in all other directions plainly haven’t achieved much, if anything thus far, why isn’t AIFA working for the enforcement of that framework? Should that not be the foundation of pretty well everything AIFA does? What say you, Mr Gay?

  7. “If the Conservative party ran its organisation by listening to UKIP it would never be able to do its job”.

    Is that so your Lordship? Do you not realise that UKIP only exists because the Useless Conservative Party decided to abandon its core support?

    In the same way, Adviser Alliance exists because Aifa also decided to ignore the concerns of its core membership.

    If the avalanche of criticism that has befallen Aifa is just from a ‘minority’, why have you been panicked into giving this self-justifying interview? Why the review to see what members want? Members have been shouting what they want from the rooftops and you have chosen to dismiss them as ‘nutters’ or ‘a minority’; even worse, you have sent one of Aifa’s Directors (no names but you know who I mean) to rubbish perceived critics in the on-line media. You should be asking your ex-members – those who have given up in disgust – just how many wild horses it would take to drag them back on board. And why the panicky last minute ‘alternative’ qualification? Because you messed up on the qualifications issue in spite of being told time and time again by members that you were on the wrong track. Let’s not even mention your dropping of the longstop campaign. Your demise, Aifa, was entirely foreseeable (not saying that your last DG scarpered in the heat of battle rather than face up to the consequences of all these policy failures, but …. ) and is totally self-inflicted.

    The sad thing is that possibly hundreds of livelihoods will go down with you.

    And like the Useless Conservatives, Aifa will be forced into a grubby coalition with another trade body just to keep your muddled-heads above water and the voice of the IFA will be completely drowned out. No one with an ounce of pride in his or her work as an Independent Financial Adviser will have any truck with you.

    Badly done I’m afraid your Lordship. Badly done.

  8. AIFA wants tied advisers in their ranks! 19th April 2011 at 9:42 am

    QUESTION: The first step to understand what advisers operating in this new structure will want from their trade body.

    ANSWER: A trade body that represents the trade and not regulators. A trade body that represents the trade and not porr quality prduct providers and Networks who will benefit from the mass cull of professional advisers to the benefit of those Networks who inherit the former advisers trail fees.

    Watch this space as AIFA looks for tied members to support the loss of 10,000 IFA’s culled and not an AIFA shot fired in their defence!

  9. AIFA we know the name of your tied game! 19th April 2011 at 9:47 am

    You have lost all credibility with the independent adviser and they are going to do to you what you have done to many of them – desert you!

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