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Does the FSA with-profits warning stack up?

Aifa has attacked the FSA’s research into with-profits advice after pointing out several flaws in the methodology used by the regulator to jump to the conclusion that many advisers were not treating with-profits clients properly.

The research was part of a wider study into with-profits focusing on the work of both advisers and providers and examined the gap in advice for many of the current 32 million in-force policies.

The FSA paper concluded many advisers were not living up to the expectations of the client by not providing ongoing advice and were therefore failing on TCF grounds.

But Aifa says the questionnaire, which can be found here at the end of the end of the paper, contained leading questions and too much weight was given
to what advisers thought of other advisers, rather than themselves.

For example, the first question on the main questionnaire begins “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”.

Aifa deputy director general Fay Goddard says this is a leading remark and a more neutral phrase should have been used.

She also warns the report’s dramatic conclusions, such as stating 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”, are built on sand.

These conclusions are mainly based on what advisers thought about other advisers, not about themselves, and therefore cannot be relied upon to create an accurate picture of the sector, says Goddard.

In the same way as people’s own experiences of the NHS are always higher than what they believe the overall state of the health service to be in, the negative press on with-profits is always going to cloud the picture.

As an illustration of what a difference this can make we only have to look at some of the results of this research. 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.

Aifa says its own stakes in the ground research gives a much more accurate assessment of the current market.

It’s findings, released earlier this year, showed overall advisers were providing good practice in this area, although they could receive more help from providers.

It is also interesting to note that the IFA research was carried in May and June 2006, so the FSA has been sitting on these findings for quite some time.

But whatever the arguments, there is certainly an issue around dormant clients and an advice gap for many with-profits policyholders- which the FSA paper talks about in some detail.

The FSA is standing by the research despite the strong criticism, calling on advisers to review their existing approach to with-profits.

The Financial Services Practitioner Panel published its annual report into the FSA offering a mixed bag of praise and warnings for the regulator.

The FSPP has warned the FSA that some of its comments around the retail distribution review risked unnecessarily undermining market confidence and prejudging the review’s outcome.

It also warns the FSA not to disrupt the current distribution system before a viable alternative is put in its place.

Another day another damaging fact about Hips seems to be uncovered as the
avalanche of criticism continues to grow.

In the last week we have heard the trading standards institute say they will not be able to police Hips, fears grow about the cost of the packs, talk of a postcode lottery and the admission from the Government that up to a quarter of Hip searches will have to be repeated.

The Royal Institute of Chartered Surveyors is to judicially review the policy on the grounds that the Government did not carry out a proper consultation and the packs also face possible defeat in the Lords this week if the Tories and LibDems carry out their threat to vote against them.

Such a vote will not necessarily derail the packs and the Department of Communities and Local Government is sticking to its line that everything is fine.

But with such hostility to the scheme from across the property industry, could their be further concessions, or more, from a Brown Government on this issue? He is certainly not a man afraid of U-turns.

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