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Cicutti: Goodbye to the gold standard

Hands up anyone who believed for a nanosecond that Aifa would reach any decision other than that of opening its membership to restricted advisers?

I certainly didn’t. The wonder is not that Aifa is now prepared to do so but that it took so long to make it and that it needed a “strategic review” lasting over six months to arrive at a conclusion most of us knew was on the cards the moment it became clear the issue was under consideration.

Aifa has for some time been caught between a rock and a hard place. Its finances have always been ropey, given the way it appears to depend to a huge extent on funding from IFA networks to pay its way.

Many of those networks believe their members are likely to take the restricted advice route, which means financial survival as an IFA-only body is not feasible.

That said, the same networks predicted five or six years ago that up to 25 per cent of their membership would opt for multi-ties and they got it wrong back then. Still, the difference this time is that there is no menu option to save the day, so maybe they have a point.

There will, inevitably, be some IFAs who believe their trade body should have consulted them over this issue, instead of carrying out “extensive research” into whether restricted advisers should be allowed to join, whatever that means.

The way Aifa seems to have made a decision without putting it to a vote will be seen as undemocratic. I am inclined to agree – even though it is highly likely that if Aifa had done so, the verdict would have been much the same.

The last time the issue went to public consultation among Aifa members back in 2005, only 7 per cent or thereabouts could be bothered to cast a vote.

Even then, with far fewer financial constraints than today, a massive 80 per cent voted to allow whole of market commission-earning IFAs to join, as long as other parts of their work were remunerated by fees or used the menu system.

In fairness, there are other compelling reasons why Aifa members should broadly welcome the concept of an organisation that includes both independent and restricted advisers in its ranks.

IFAs should remember that the main role of their trade body is not to promote independent advice – that task was hived off to IFA Promotion long ago – but to represent members’ viewpoint to the regulator, the Treasury and other official bodies.

Sure, there are issues that will affect IFAs more than they do restricted advisers and vice versa. There may even be occasions when the interests of both sides diverge. But whereas in the past it was sometimes in the tactical interest of IFAs to argue for a different regulatory outcome between themselves and tied advisers, this is less likely today and if potential contrasts do emerge, they can be dealt with issue by issue.

Is this a decision made in heaven? Well, not quite. The first point to note is it is being forced on Aifa. If the trade body’s finances had been strong, if it were not forced to rely as much as it does on networks’ funding and if it were not facing a potential exodus of members after 2012, I have no doubt that it would not have opened its doors to restricted members. Aifa’s choice, therefore, is a sign of weakness not strength.

Second, and this must be said too, while the decision makes cold rational sense, it means an end to the sense of exclusivity that comes with genuine independence – what even Aifa was calling the “gold standard” barely a year ago. From now on, Aifa will be assisting those who wish to muddy the waters as to what constitutes independent financial advice.

It is possible to argue (and I have done so earlier) that it was not Aifa’s job to define or promote full independence. Nevertheless, it did so indirectly as part of a loose collection of bodies that at least claimed to represent independent advice or advisers.

It is all very well for Aifa chief execeutive Stephen Gay to say he refuses to expel people “simply because the regulator has changed the goalposts about what it considers independence to be.”

But it is the regulator’s decision to restrict its own definition of genuine independence which will determine how millions of consumers look at advisers two or three years down the line.

Yet for the first time in more than two decades, there will be a divergence between the regulator’s definition and those whom Aifa accepts into membership.
Finally, Aifa’s decision spells the end of any attempt on its part to make clear status disclosure central to its representational work among IFAs.

That potential role was abandoned the moment Stephen Gay made his announcement about restricted advisers. It will no longer be possible for Aifa to argue IFAs’ distinctiveness because its own definition of independence is now wildly at odds with the regulator’s.

Was it a price worth paying for the sake of a few more quid in Aifa’s coffers?

Nic Cicutti can be contacted via


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. “IFAs should remember that the main role of their trade body is not to promote independent advice – that task was hived off to IFA Promotion long ago – but to represent members’ viewpoint to the regulator, the Treasury and other official bodies”
    Exactly where AIFA FAILED.

  2. This organisation, in my opinion, was on its way downhill from the moment it appointed a pro RDR Life company employee.

  3. I pretty much agree with Nic’s article. I don’t think AIFA really had any other choice. It will however need a name change as it will no longer be the Association of INDEPENDANT Financial Advisers. Bearing in mind there is no representative body for all advisers at the moment (there isn’t one for tied as the CII/PFS keep reminding us they are not a trade body and the IFP whilst having both tied and Independant are not a trade body either).

    Perhaps AIFA should become the AFA and have different colleges, Independant, Restricted, Tied….

  4. You’re so right both you. Any adviser who continues to hand over cash to AIFA needs serious therapy!

  5. Mr Castle, it is INDEPENDENT

    The Council is made up of networks and pseudo networks or ‘commission clubs’, not many IFAs on there!! And those that were or are have some very strange ideas.

  6. AIFA should have fought to protect the terms ‘Independent’ and ‘Advice’ like a mother bear protecting her cubs and it would have been a more honourable course to have died defending them – it is in its death throes anyway, changing the logo on the letter-heading is only prolonging the agony.

    As Nic says, this move is not surprising but it is undoubtedly down to a lamentable failure of policy at every level and pre-dates the appointment of poor old Stephen Gay (who can be in no doubt as to why his predecessor jumped ship when he did). Unless AIFA / AFA can convince both RAs and IFAs that they have changed policy (and will more money in the coffers persuade them to do this? Don’t see why it should) then what incentive is there for RAs to part with their hard-earned? Answers on a postcard please.

  7. Okay, Nic ~ how big a fee would you expect to have to pay for a gold standard report on ALL your options and on ALL the products and providers best suited to each of those options, in accordance with the FSA’s new definition of independent, when contemplating a lump sum investment of, say, £30,000? And, more to the point, would you be prepared to pay it?

  8. Julian, I think you are mis-representing what the definition of independence is going to ask of IFAs. The range of options you would have to consider is going to depend hugely on the primary test of suitability for the client. No-one is asking anyone to explore every product from every provider on every occasion. Fair and unbiased analysis of the relevant market does not translate to exhaustive analysis of every potential market for every client.

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