AIFA does not spend time defending the current regime in its documented response to CP166, instead f...
AIFA does not spend time defending the current regime in its documented response to CP166, instead focusing on the changes put forward by the FSA and pointing out what it considers to be inconsistencies or weak points in the proposed regime.
The main concerns expressed concern "checks and balances", "terminology", "multiple ranges", "suitability", "capital investment and advisers", "appointed representatives" and "initial disclosure documents".
Appointed reps are an addition to AIFA's comments since its initial reactions, because, it says, it missed a key fact buried in the FSA's proposals.
The issue is that of the FSA seeming to allow appointed reps to offer fewer products than the principle(s) for whom they work.
"Clients could be attracted to a firm on a false premise and, especially with out of range recommendations, there could be a tendency to oversell," AIFA says.
The FSA's proposals as currently written also cause confusion over the use of the term "appointed representatives of networks" rather than "members", which AIFA says is more user-friendly.
It wants different terms to describe different categories of appointed reps and for "network members" to continue to be able to use that term.
Looking at the overall objectives of CP166, AIFA says it will be important for the FSA to strike the right balance between competition considerations and consumer protection.
AIFA charges that "the new model places almost total reliance on competition" to meet regulatory demands, but at the same time seems to lack safeguards against mis-selling because of the "out of range" option.
AIFA says basic consumer protection will be needed from the start in order to ward off possible future reviews that would be the end results of additional consumer confusion.
Terminology will be an important part in ensuring consumers also properly understand what it is they are buying, and from whom they are buying products.
The concept of "independent advice" is firmly embedded in the public mind, but only because of its use over a considerable period of time and because it differentiates such advice from other advice.
Terminology needs to be set to aid consumer education, which is, ultimately, the other piece of the puzzle that is improving consumer understanding of financial services, AIFA says.
Multiple ranges could lead to trouble if advisers start with a narrow range because of personal economic interests and then go to a wider range, rather than starting from the perspective of what is best for the client.
Avoiding such problems will be tricky, AIFA says, although it wants to see further proposals on the menu option before making additional judgements on ranges.
AIFA is generally happy with the proposals on suitability in CP166, and with the proposed definition of independent advice.
However, the association warns that with the inclusion of mortgage and general insurance under the regulatory umbrella, the FSA needs to ensure that consistency of definition is applied to different types of advice.
On the issue of ownership of IFA firms by providers or networks, AIFA says there is no easy answer beyond providing generic statements of ownership status.
For example, the FSA has not stated how exactly it wants network members to disclose provider stakes in the network owner, and where an IFA is a listed company it may not be practical to list ownership levels above 5% as that is likely to fluctuate according to market trades.
Finally, on the issue of initial disclosure documents, AIFA says it is vitally important that documents do not "discourage the consumer that everything is very complicated and all sorts of problems lurk beneath the surface."
"The material must be attractive to read and generate confidence."
AIFA says it will be important for the FSA to do a dummy run any forms it decides should be used in order to test the effects of the wording on consumers.
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