Nic Cicutti: What are the most important challenges facing Aifa?
Chris Cummings: The regulatory architecture is up for grabs. The FSA potentially coming together more with the OFT will create a different regulatory culture and we are going to see more than a brass plaque change at the FSA.
We have always viewed regulation as being a game of two halves – prudential regulation and conduct of business regulation.
My own view is that the FSA has taken conduct of business regulation to mean point-ofsale regulation and has applied it vigorously to the intermediary community and not very vigorously to the banking community.
For example, the FSA has got 16 people regulating Barclays, slightly more than that regulating the IFA community, and there are more people working in Barclays than in the IFA community.
NC: How many people regulate the IFA sector?
CC: Somewhere between 300 or 400. The reason I am being vague is that, about this time last year, the FSA employed 2,400 people. They now employ 3,700.
NC: Is there an argument for a slimmed-down FSA?
CC: We are challenging this year’s FSA fees of £458m. Not the number per se, what we are challenging is the fact that our membership accounts for 20.2 per cent of the FSA’s annual budget, so £1 in every £5 raised by the FSA comes out of the intermediary community. That figure is just too large.
In my off-the-record conversations with the FSA, many are looking for the next regulatory lever. They kind of tried it with treating customers fairly but it was still conduct-of-business-based.
NC: If the regulatory side is groping to a more equitable solution, is there good news round the corner for IFAs?
CC: There is a general acceptance that conduct-of-business regulation is not the answer any more. Disclosure does not work – the more paper you deliver unto people the less they read.
NC: To go back to TCF, there was opposition to TCF from the IFA rank-and-file
CC: I think it was applied to the IFA community partly as a drive for regulatory purity. We went on record saying what we needed was less evangelism and more concrete proposals from the FSA.
NC: Where do the Conservatives’ proposals leave the retail dist-ribution review?
CC: What most politicians are telling me is there are no votes in stopping the RDR, no votes for standing off from commission-based remuneration and no votes for standing up for people being less qualified.
No one is going to roll up their shirt sleeves and say “Abolish the RDR”. I just don’t see that happening.
NC: On the qualification side, a lot of IFAs see the FSA’s proposals as disruptive. Is that your view?
CC: We started the RDR process as the most well qualified part of the so-called distribution chain. I was talking to Fay Goddard recently and she was telling me that the pass rates at the banks were now getting so high that I am a lot less certain I can make that claim.
IFAs are seen as the consumers’ champion. We cannot maintain that position of trust if we are also arguing that we do not need to be as well qualified as somebody in a bank.
But also, firms should have been offered regulatory dividends as an incentive, so if the company spends some money, it knows that part of the cost will be offset by a lower regulatory fee.
NC: A lot of IFAs are staggered by how they’ve been clobbered by bills from the FSCS
CC: This is something we have taken incredibly seriously. We have been negotiating for months, not only on Keydata but also on Continental and Square Mile.
The FSA should not have authorised Keydata in the way it did and it should not have allowed the firm to portray itself to the market in the way it did. So my root cause analysis is that this is more a regulatory failing rather than a compensatory scheme issue.
NC: What does the FSA say?
CC: The FSA points to the fact that it has now changed its authorisation process.
NC: But in the meantime you will have to take this one on the chin.
CC: The legal position is straightforward, so our chances of winning this have never been high but sometimes you have to fight battles even if you do not expect to win them all.
The other issue is that of a complete funding review – what kind of compensation scheme do we need? How is it going to be funded? Who should fund it? Is this the time to look at a product tax? If so, we need to look at a compensation scheme from first principles.
NC: What was interesting about the FSCS discussion was the conspicuous silence from Alan Lakey’s Adviser Alliance, on the more “extreme” side
CC: [interjects] I like the term “passionate”
NC: On the “passionate” end of the IFA community. Is that new realism on his part?
CC: You would have to ask Alan that.
NC: So you are not worried or feel challenged by some of the noises off-stage – or are they useful, in the sense that you sometimes need outside pressure on you?
CC: Believe me, Aifa’s membership is very good at telling me what the issues are. But I am a great believer in learning lessons from history. Why were the Roman legions so successful? They had fantastic discipline.
Similarly, the banking community has been a textbook example of how – when the world is against you – you form a line, stay in line and you defend your corner.
NC: Would you prefer Alan inside the Aifa tent?
CC: Absolutely. I would much rather people bring their passion into Aifa.
NC: Some people have predicted that when the RDR comes into force, the IFA sector will be decimated. Do you share that view?
CC: In our research, the polls started off with 30-odd per cent of IFA individuals saying they would do something else. The last time we ran it, it was 17 per cent. From a more recent poll, it is looking like 9 to 11 per cent. We normally lose about 5 per cent of the IFA population a year, so this suggests it will get to a V-shape and then grow again.
NC: Do you see yourself more as a capable negotiator or as a rhetorical leader in the “Bob Crow RMT” mould?
CC: There are times when Aifa has taken things to the wire but we have done it behind closed doors and said: “If this continues, it really is a judicial review and we will go all the way.” That is our nuclear option and we deploy it very occasionally. Because it is occasional, it is enough to get people to change their minds.
NC: So you’re not a Garry Heath-type of leader
CC: I am a value-based leader actually. I am lucky Aifa is granted permission to lead by its membership, unlike Biba and the ABI, who have to achieve things through negotiations between bigger firms. Our members look to us to steer them the right way.
NC: Presumably, it sometimes means you have to say unpalatable things to members. How do they take it?
CC: I’m still here