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Could IFAs be Kelly&#39s heroes?

Could there be a new dawn for the financial services industry as far as the Government and the FSA are concerned?

Has the Government changed its mind after appearing to be determined to scrap polarisation and to bypass IFAs for many products?

The industry is rife with speculation that this is the case following unsolicited comments by Treasury economic secretary Ruth Kelly last week in which she voiced strong support for IFAs.

Speaking at a fringe meeting at the Labour Party&#39s annual conference in Brighton, Kelly said: “The value of independent financial advice will be critical to the future of the financial services industry. The people who mainly benefit from IFAs are the sophisticated customers who know the right questions to ask and who understand commission. Can you design a system for more people to get better access to IFAs?”

It is difficult for many in the industry to believe that the Government may be recognising the folly of its ways, having been the source of many accusations against IFAs, such as them being responsible for the pension misselling scandal and lack of consumer understanding of savings products.

Clerical Medical head of strategic marketing David Shelton says: “It is encouraging to hear the Government is supportive of the strong customer trends favouring independent advice.”

Kelly, having been minister only since the general election in June, is still a relatively unknown personality in the industry. It could be that her presence will mark a new era in relations between Westminster and financial services firms.

Perhaps it would be helpful to catalogue some of the comments made by Kelly&#39s predecessors to put into perspective the potential importance of her message.

In November 1998, then Treasury economic secretary Patricia Hewitt attacked IFAs in a House of Commons debate over pension misselling. She said: “In all our constituencies, there are people who trusted poor advice by some IFAs and whose future may well be much poorer as a consequence. On average, in each constituency represented by a Right Hon. or Hon. Member, for each IFA firm in that constituency, there are about 100 victims of poor advice from an IFA or a life office.”

Hewitt has since been promoted but in her new role as Trade and Industry Secretary she retains a large degree of influence over the industry.

In February 2000, another Treasury economic secretary wrote off financial advice as unnecessary. Melanie Johnson, who in the last Cabinet shuffle was moved to be minister of consumer affairs, said in a letter to Conservative MP John Randall: “In addition, while financial advice can be valuable, it is not a necessary condition for all savings and investments that are suited to people&#39s individual needs and circumstances.

“For example, Catmarked products and stakeholder pensions are products whose standards mean that investors should be able to get a good deal without needing to pay for financial advice.”

Given these sentiments, last week&#39s comments by Kelly are that much more significant. Could it be that New Labour has plans to incorporate IFAs in its plans for the industry?

Some industry spokespeople pinpoint a change in attitude emerging early in the days following the general election. Aifa director general Paul Smee says he has noticed changes since the start of the summer. “I think there has been a sea-change since the election. The Government has decided to stop trying to find ways of getting round advisers. Instead, it has come to the conclusion that it has to work with the industry to bring about the changes it wants,” he says.

Scottish Life head of communications Alasdair Buchanan says Kelly&#39s comments are encouraging but he cautions against making too much of them. He suggests the anecdotal lack of success of stakeholder may have something to do with the change in attitudes.

Buchanan says: “I wonder whether the difficulties in getting stakeholder to market has led people to review what the fundamentals are here. In this context, you need IFAs to take these things forward.”

All this is pure speculation, of course. Both times Kelly made the comments they were unscripted in response to a question from the floor, so may be representing her personal views rather than the administration&#39s.

But given that lively debate at times saw several negative comments expressed about IFAs, it seems odd that she would make a point of defending the sector if she did not believe firmly in its importance.

Only time will tell if this is a true reassessment of the value-added service provided by IFAs or just comments from one minister representing one view out of many in the Government.

Last week&#39s FSA polarisation conference also saw the regulator signalling it did not plan wholesale changes.

Given that prevailing opinion is that the FSA has been pressurised by the Treasury into making changes to polarisation, perhaps recent events do indicate a softening of positions.


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