The question is worth asking, if only because there are some signs that the FSA is adopting a marginally less judgemental role towards independent advisers.
First was the story, reported recently, that the regulator is cutting fees for IFAs and mortgage brokers by £11.7m for 2009/10 compared with its initial proposal in February. The 4.8 per cent increase is still steep but not as high as the 15 per cent originally demanded.
Minimum FSA fees will be frozen at 2008/09 levels, which means that once gross income form financial penalties is rebated back, an estimated 10,000 smaller firms will see a fee reduction compared with the previous year. Mortgage brokers will see a 2.7 per cent increase compared with February’s proposed 21.2 per cent.
Only a few days later, FSA director of retail policy Dan Waters told the Association of British Insurers’ biennial conference that he would be requiring the same level of qualifications from salespeople offering so-called guided sales, saying: “People have asked me, are you going to require the same level of advisory qualification for people in such services? The answer is yes, and some people do not like that answer but I will tell you why we have landed on that page.
“We think, from the view of consumer communication, if you are trying to build a brand for advisers that is a profession, to say, by the way, here are some other people who are also advisers and will also be calling themselves advisers because Mifid allows it, is just a recipe for going nowhere in terms of trying to achieve those underlying objectives.”
The announcement will be a blow to the ABI, which has long hoped to promote guided sales as the panacea to the continuing savings gap. Only a week or two ago, the trade body’s director of life and savings Maggie Craig was claiming that “cost of advice” was a key “barrier to access” to financial advice and affordable products.
Implicit in all the arguments over guided sales is the fact that they will offer a cheaper option to insurance companies to sell their products to consumers.
But if we take the FSA at face value, this will be much harder to achieve – assuming it sticks to its word and does not allow any cop-out in terms of not requiring as strict qualifications from advisers engaged in “non-advised” sales.
Meanwhile, there is growing evidence that the FSA is beginning to distinguish between different sections of the financial services industry and the role they play in eroding public confidence in the sector. FSA chairman Adair Turner told ABI members that while banks clearly bore the main responsibility for the financial crisis, insurers had contributed to the erosion of public confidence in the way they had conducted their own affairs.
Turner warned insurers at the ABI conference that even if the regulator does focus on banks and the need for them to maintain their own financial strength, this will not lead to reduced supervision of consumer protection, saying that the era of “light-touch regulation” was over. Having read his speech twice, I see nothing in it that affects IFAs to any significant extent.
Ironically, my concern would be that the regulator fails to see that different types of regulation are required for different sections of the industry. Indeed, although many IFAs are not in favour of principle-based regulation, I would argue that it offers the potential for genuine professionals to differentiate themselves from salespeople for whom written rules are the only way to control their activities.
Of course, the process whereby the IFA community is seen as totally trustworthy by the FSA will not necessarily involve a linear approach. There will inevitably be moments where the regulator and advisers do not see eye to eye.
One of those areas is the continuing wrangle over the refusal of the FSA to sanction a 15-year long stop, insisting that indefinite liability is the only serious way forward for advisers. Its refusal has led to all sorts of heated comments in the trade press, including the usual conspiracy theories over the regulators refusal to disclose the legal reasons for this is that it fears it could lose in the event of a legal challenge.
Yet I fail to see how an IFA can maintain a relationship with a client, continue to take that client’s money through trail commission, possibly for decades, yet somehow argue that, in the event of that client wanting to file a complaint against that firm, he would be time-barred after 15 years. If you do not want indefinite liability, stop taking your clients’ money indefinitely.
More seriously, from the consumer perspective, there is a great danger that the FSA’s forthcoming RDR document will fail to offer any serious mechanism for IFAs to distinguish themselves officially from salespeople, either in the form of effective status disclosure or through a differentiation with respect to remuneration.
To some extent, this is a by-product of the RDR’s long gestation period. But if the regulator genuinely wants to be seen both as a protector of consumers and a fair friend of IFAs, it still has a long way to travel.
Nic Cicutti can be contacted at firstname.lastname@example.org