Publication of CP121 and the threat to polarisation has shocked many advisers into believing their l...
Publication of CP121 and the threat to polarisation has shocked many advisers into believing their livelihoods and the concept of independent advice are now at serious risk.
Yet knowing what to do next or how to go about building a business in an uncertain climate is a daunting task for many IFAs, given that there is still no conclusive direction towards the problem, and intermediaries are looking to the experts to provide guidance.
Paul Smee, director general of the AIFA, takes a look at some of the key principles within CP121 and explains what intermediaries can do to have a say in the shaping of their businesses.
My advice to IFAs and providers alike, in the wake of the FSA's recent announcement on reforming polarisation, is to avoid making any decisions about your future until we have a clearer view of the FSA's direction. I think we all need to concentrate, for the time being, on shaping the FSA's thinking by submitting detailed responses to the consultative paper.
But we can also highlight inconsistencies. The FSA commissioned a study on consumer behaviour, which it published at the same time as its consultative paper. This identifies that independent advice is the consumer's preferred choice in a perfect world. But in the FSA's consultative paper, they admit that the outcome of their proposals may well mean a reduction in the availability of this form of advice. Should they not have been looking to increase, not reduce, its availability in line with consumer attitudes?
For our part, AIFA will be addressing the considerable gaps in the FSA's proposals; challenging the paper's many inconsistencies; and going through the 'defined payments system' (or DPS) with a fine toothcomb.
One of the gaping holes on which we will be submitting our own proposals, is the central issue of how the tied sector will be regulated. The FSA has a lot to say about the regulation of the IFA post-polarisation, but it is very woolly about the rules which would govern tied agents and what it calls 'distributors' (multi-ties). The FSA is proposing that these advisers would be able to receive commission. AIFA believes, therefore, that a similar regime of upfront and equally transparent disclosure should be put in place for tied agents, to mirror the one proposed for IFAs. It should also be implemented within the same timescale. If the FSA fails to treat tied agents in a similar way, the playing field will be tipped in their favour.
The FSA's proposals for removing commission bias (and their evidence that such bias exists is not overwhelming) are also slanted. Those IFAs who wish to continue to call themselves 'independent' will have to operate a deferred payment system (DPS) and rebate any commission received which is over and above the sum agreed upfront with the consumer for the cost of advice. Yet the multi-tie agent could be tied to an unlimited number of providers and would still be allowed to receive commission.
The FSA seems to be conceding that the outcome of their proposals could mean that increasingly IFAs would be servicing a more up-market clientele. But under the current system, these people are already more likely or more willing to pay a fee upfront and are probably more experienced investors who need less protection. Surely the FSA is using a sledgehammer to crack a nut?
If you have any comments you would like to add, either email them to the editor thru the right-hand link or post them on the "Industry Issues" discussion board.
Partner Insight: Continuing the Architas education series for clients.
What made financial headlines over the weekend?
290,000 already affected
Putting the tech into protection
Square Mile’s series of informal interviews