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Rise to the challenge

The sound of a gauntlet hitting the floor reverberated across the financial services industry earlier this month. Sir Callum McCarthy’s speech at the Gleneagles Savings & Pensions Industry Leaders’ Summit was a challenge to the industry to address fundamental questions.

Callum surfaced some contentious issues that we have all deliberated upon from our own perspective. Was he right to speak out? Was he right to address these matters by way of a challenge? Was the thinly veiled promise of FSA action the right way to bring about a sharpening of focus on the issues? Let me give you my answers to these questions.

I believe in market rather than regulatory solutions. While the need to protect consumers from dishonest firms is essential, regulatory action risks distorting the market and is both costly and disruptive.

If we are ever to have a proper relationship with our regulator, it must be based on mutual respect and a recognition that the industry is ultimately the deliverer of change. Indeed, Callum recognised this point on several occasions during his remarks.

Consumer confidence and trust in financial services products are real issues. However, does the industry stand alone in this problem? No. Part of the reason for any loss of confidence must be laid at the door of the regulator.

The FSA plans to address the market problems through work on financial capability, treating customers fairly, a study of “provider/ distributor responsibilities” and a wholesale review of distribution.

Personally, I am an advocate for financial capability as a better informed client makes better decisions based on a deeper understanding of the advice they receive. It also makes them more likely to seek out professional advice rather than dealing with tied salespeople.

TCF we already know about and getting the balance right on “provider/ distributor responsibilities” has occupied Aifa for quite a while. We look forward to the FSA’s comments shortly.

The distribution review presents us with an opportunity to confront and confound some of the myths that have been circulating around the market for some time. I know from my own personal experience of briefing senior policy makers that the scale of the IFA contribution to the market is massively underestimated. We remain by far the biggest player, with 63 per cent of all retail financial services coming via IFA firms.

Finally, I think Callum’s speech is worthy of reflection and a mature response. The regulator doubts that the industry has the will to address issues of consumer trust and reputation. Aifa is more than prepared to do so. The IFA community is increasingly professionalised, trusted by its clients and robust. While we may not have the “high street brands” the regulator has commented favourably on, those who have had these advantages have squandered them.

The regulator has come to the industry with the issues as it sees them. How will your firm respond? Will you stand on the sidelines as others dictate the market or will you support the trade body that the regulator listens to? It is at times like this when we need to pick up the gauntlet and rise to the challenge. Failure to do so means resignation to the whims of others.

Chris Cummings is Aifa director general

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