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Aifa slams FSA with profits research as flawed and misleading

Aifa has attacked the research behind the FSA’s recent warning about the way advisers are treating with-profits clients suggesting it is flawed, misleading and lacking in credibility.

The FSA published research this week which it said suggested many advisers are failing to treat their customers fairly by not offering them the ongoing advice they expect to receive.

But Aifa deputy director general Fay Goddard has hit out at the research suggesting it is flawed because it was based on leading questions and came to conclusions based on what advisers thought of other advisers, not about themselves.

She says the way that such questioning is then used to reach the fundamental conclusion in the report’s executive summary that many advisers are not treating their customers fairly is particularly misleading.

Goddard says the first question on the FSA’s IFA questionnaire begins with the leading line: “The FSA understands that some financial advisers may be finding it difficult for a variety of reasons to advise their clients about with-profits products”.

Many of the questions in the questionnaire are then based on what advisers think of other advisers, rather than asking them about their own behaviour, which are then used to make dramatic conclusions about the advice sector.

The summary says the research “has confirmed anecdotal evidence of poor availability” and that “we conclude from our research that, in this aspect of their business, a significant proportion of IFAs may not be complying with Principle 6”.

Goddard says wording such as “confirmed” is misleading as the answers were based on opinion of other advisers, not fact.

Goddard says: “We do not believe that this research provides the degree of accuracy to make its findings credible. The conclusions are based on flawed methodology. We are confident that advisers are advising their active clients on with profits properly and abiding by TCF.”

The FSA paper itself shows the differences in answers when advisers are asked about themselves rather than others.

The research found 85 per cent of advisers said they review client portfolios at least once a year. But when asked whether they thought financial advisers in general were proactive in this area only 40 per cent said yes.

The FSA paper says that as a result of this work the regulator will take supervisory or enforcement action where appropriate in cases where it finds customers are not being treated fairly.

Goddard says the research must also be put into perspective as there are around 32 million policies still in-force with around £423bn assets invested.

She says many of these polices were sold by direct sales forces, without ongoing advice- a point addressed by the FSA in the paper.

In the majority of cases where advisers have active clients ongoing advice is being given but in other situations there was no expectation that the adviser would give ongoing advice, she says.

Goddard also says the adviser may have asked the client about ongoing advice and they may have turned it down.

She says Aifa is confident that advisers are advising their active clients on with profits properly and abiding by TCF pointing to the trade body’s recent stakes in the ground work.

Aifa’s research, quoted in the FSA’s paper, found that overall advisers were providing good practice when giving advice on with-profits although it acknowledged that a debate was needed about how to tackle dormant or inactive clients.

Goddard says Aifa’s work was a detailed factual study of with profits advice, compared to the less rigorous research put out by the FSA.

The FSA admits in the report that as part of the work it did not undertake any research into the quality of advice that is being given by advisers to with-profit policies.

The research was undertaken in May and June 2006, yet was only released this week.

FSA spokeswoman Sam Bennett says: “We stand by our research and reiterate the point that all advisers need to review their existing approach and where necessary implement changes.”

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