Aifa had lobbied for reform of the FSCS for almost two years. We invested a considerable amount of time in providing research, analytical evidence and technical information which proved the need for reform. We lobbied for a system which recognised the mutual financial interest that exists between those who manufacture products and those who advise on them.
This is not a cross-subsidy, as it is sometimes called, as that makes it sound like a charitable handout based on largesse. Responsibility can fall at any stage along the value chain when a product goes wrong.
A discussion paper followed on the detail of the reform. The proposals saw considerable resistance from vested interests in other parts of the industry, especially those who currently pay less than they should. However, Aifa was successful in highlighting the benefits to consumers of reform and the need to reduce the levy on IFA firms.
We ran a campaign asking members to respond which generated the biggest ever response to an FSA consultation or discussion paper. This demonstrates the power of the IFA community when we rally and speak with a single voice. The result was a consultation paper setting out firm proposals for reform. This is when the gloves came off and there was talk of a judicial review of the FSA and its powers to reform the FSCS.
The FSA board came under strenuous lobbying from across the industry to stop the review completely. Many organisations stated that IFA firms should be required to hold more capital, buy higher levels of PI insurance and even to be forced to go through a reauthorisation process. There were calls to delay reform of the FSCS until after the retail distribution review proposals had been implemented. Some even said the case for changing the FSCS was unproven.
Aifa was the lone industry voice pressing the case for change. In July, it came down to a simple struggle of right over might. Aifa lobbied the regulator not to be swayed by bigger organisations acting to protect their balance sheets and failing to recognise the benefits of reform to consumers and the industry.
The FSA board took the right decision and reform is to proceed. This is good news for every IFA firm in fee block A13 who should see their levy fall by around 50 per cent from £1,200 per adviser.
Aifa has won a major victory for every IFA firm. We have proved that reasonable, robust, continuous lobbying backed by consumer-focused arguments will win the day.
In the run up to the RDR, IFAs should be reassured that Aifa can bring its influence to bear. IFA firms can look to the future with confidence, so long as we speak with a united voice. For too long, the professional advice community has been an easy target. Divide and conquer has been the order of the day. By supporting Aifa, firms can make sure that this approach becomes as historic as an FSCS funding system that penalised good IFA firms.
Chris Cummings is director general of Aifa