Regular readers of this column will not be surprised to read that I have been a member of a trade union all of my working life. I first joined as a teenager many years ago and continue to pay my monthly subs today.
The role of a trade union is relatively easy to understand. They are there to get higher wages for you if they can, to stop you being treated unfairly and to defend you if things go wrong. My union has helped me on one occasion in taking legal action to extract many thousands of pounds from a recalcitrant former client.
Trade associations such as Aifa, on the other hand, are much more nuanced in terms of what they are there to do. Ultimately, a trade association does not represent people who are bound together by the same or very similar working conditions, or pay rates.
So unlike Michael Johnson, a contributor to the Tory party’s economic competitiveness review, quoted in Money Marketing recently, we should not be surprised by the fact that the industry – and IFAs in particular – are “wallowing in vested interests”. That is entirely normal.
Aifa’s members pride themselves as being individuals and have their own special interests to protect and defend. After all, many are business rivals – co-operating one minute, yet plotting to how to beat their competitors the next.
In the case of IFAs, there are, of course, a lot of issues on which members share a common interest and should collaborate fully but there will be as many times when members disagree.
On the issue of the RDR, I have been surprised by the number of financial advisers who have contacted me to say they do not agree with what they perceive as Aifa’s stance on training and qualifications for financial advisers.
Which brings me on to the subject of Aifa’s paper, Advice Horizons, published recently. For any trade association where there are potentially conflicting interests, the task is that of seeing if these interests can be reconciled while accepting their obvious differences.
That, in my view, is what Advice Horizons tries to do and this ought to be recognised by those who have read it.
The problem lies not so much in what its 40-odd pages are trying to do but in the way that – by trying to offer catch-all solutions to its members – Aifa risks turning itself into a laughing stock.
Let us look at the positives first. Aifa is right to point IFAs to different fee models such as monthly retainers, time-costed fees or fees relative to assets under management.
It is also correct to point to various other options for IFAs, such as collaborating to create common back-office functions and even to separate elements of their businesses between restricted and non-restricted advice.
At the same time, to discuss foreign passporting as an option and simply refer to it as being a potentially “demanding” alternative to UK-based regulation is a cop-out. It is not just “demanding” but, in my view, unethical to take this route – in precisely the same way that the Prudential opted to be directly regulated by SIB in the 1990s – and Aifa should have been completely clear on this.
The biggest problem for me, however, is in Aifa’s discussion of the difference between independent and “restricted” financial advice. The paper, again rightly, describes genuine independence as the “gold standard”.
But it then says: “Until recently, restricted advice has been viewed with disdain by many IFAs but there is a growing view that constraining a firm’s activities, and in particular its business processes, can generate efficiencies and also open up the opportunities to partner or joint venture with manufacturers and fund management companies – creating new revenue streams.”
The paper then bizarrely claims the FSA’s definition of “restricted” does not lower the threshold for quality of professionalism or advisory standards. Well maybe not, but you can bet your bottom dollar that at least some of those former IFAs – and other salespeople operating in the “restricted” swamp will do so to abuse the system.
That is not just my opinion but also that of others, including Ernst & Young director of financial services Robert Wood, who told a recent conference: “An unintended consequence of the RDR is that product bias will increase as a result of high numbers becoming restricted. We could see a second round of bias returning to the market.”
It is hard not to conclude that a key reason why Aifa is openly discussing this option, and doing so in favourable terms, is because it believes that a significant element of its current membership will ditch genuine independence. If so, under Aifa’s existing operating model, the organisation would be financially devastated.
Which is why, compared with a very similar debate a few years ago over admitting multi-ties into membership, this time, Aifa does not appear to have any problems with allowing “restricted” advisers to remain in its ranks.
There is certainly a good argument to be had on this issue but until the minor matter of Aifa’s own long-term financial dependence on the fees of “restricted” advisers after 2012 is discussed openly, it will continue to be the elephant in the room that everyone knows is there but pretends not to see.
Nic Cicutti can be contacted at firstname.lastname@example.org