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What&#39s it all about, FSA?

More than a month after the publication of CP121, confusion still surrounds much of what the FSA is trying to achieve.

One proposal, included almost as a throwaway line in the document, has left the industry perplexed.

The industry is demanding that the FSA clarifies what an authorised financial adviser is going to be – multitied, independent or a combination of both?

There is plenty of information about how IFAs will be compelled to operate under the new regime and plenty about gap-filling and multities or distributor firms but there was very little information on AFAs.

Despite this conspicuous lack of detail, the concept of an authorised financial adv-

iser appears to be gathering steam. On at least two occasions, one an interview with a radio station and the other an appearance at an industry conference, FSA head of the polarisation review David Severn has emphasised the merits of this tier of adviser.

His message is that if an IFA wants to continue as they are, being remunerated by commission and looking at the whole market for products, all they have to do is drop the word independent from their name.

To many in the industry, this seems rather odd. Why, after all, engage in such an elaborate and costly exercise if the end result is only going to be that IFAs have to change their name?

LIA director of public affairs John Ellis says: “If this is another route, then what is the point of the entire exercise? Just continue on as you are, only drop the independent from your name is the message in that case.”

To some, the very appearance of the AFA title smacks of a last-minute addition to the paper, possibly on the suggestion of competition experts or legal minds in the industry.

Perhaps the FSA only real-ised at the last minute that it does not have the authority to ban the use of commission for IFAs or, at the very least, would face a challenge from the Office of Fair Trading if it tried to.

Another industry theory is that Severn has never been that convinced by the arguments against IFAs being paid by commission. To placate him, the board agreed at the 11th hour to include the mention of AFAs.

But all the industry can do is speculate, given the lack of clarity coming from Canary Wharf.

Some predict that as many as 70 per cent will take the AFA route but until there is more information about exactly what that will entail, it is difficult to make predictions with much accuracy.

Clerical Medical head of strategic marketing David Shelton says: “I think 70 per cent of IFAs will go that way.

I think 10 per cent will go for defined payments and the rest will consider multi-tied. The reason most will take the AFA route is because they can give their clients choice over how they are remunerated.”

The idea that this is a solution that the FSA will be happy with is laughable to many IFAs, who say they cannot help wondering how dropping independent and replacing it with authorised has anything to do with benefiting consumers, as the regulator claims.

Informed Choice managing director Nick Bamford says:

“It seems incredibly strange to take a word out of a title and use that as a basis for change. It is not about consumer benefit, it is about control of distribution.”

Stepping back from the theoretical debate surrounding the AFA model, what about simple things such as telling one&#39s client bank of 30 years that you can no longer call yourself independent but that everything else will rem-ain the same?

What about the costs of reprinting all one&#39s stationery, business cards and marketing literature to comply with the FSA? This is one of the arguments which Aifa hopes to make against this proposal.

Director general Paul Smee says: “One of the things we hope to demonstrate by our cost benefit analysis is that it has costs but no benefits. I do not understand what this disruption does to help the market in any way.”

The authorised financial adviser is just one of the many mysteries to come out of CP121. For the sake of the future shape of the ind-ustry, IFAs and providers are hoping that the FSA eventually lets them know what it is all about.


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