Financial advisers are polarised by the quality of their advice as some push risky products others would never recommend, according to Clive Briault, FSA managing director of retail markets.
Speaking in Northern Ireland yesterday at an Aifa and Ami meeting, Briault told the audience of IFAs: “Iin each episode of mis-selling we see a polarised situation in which some advisers are pushing complex and risky products strongly while others are closer to the ‘I would not touch this with a bargepole’ position”.
“Mystery shopping” exercises undertaken by consumer organisations and the media found “worryingly large incidents of poor advice”, he added.
While he acknowledges these were based on very small samples, Briault said “the similarity of the results each time cannot easily be explained away”.
The FSA also found examples of poorly managed and operated firms – a recent visit to 25 small firms in one area of the country revealed almost all firms had issues relating to record-keeping, provision of suitability letters and the charging of fees or commission, Briault said.
In four of those firms the FSA judged the failings put customers “at serious risk”, he added.
“We see firms with weak financial positions and inadequate capital resources, often because the directors have removed capital from the firm in the form of remuneration. This means there is little money in the pot for when things go wrong.”
Briault commented “the solution lies in your own hands, by ensuring that sufficient capital is kept in the business to enable a reasonable amount of claims against your firms to be met if the need should arise”.
He added the various weaknesses of firms mean they regularly fail or have to be supported by loans from product providers, and failure of firms as a result of these problems also creates greater calls on the Financial Services Compensation Scheme and higher levies.
But Briault stressed not all financial advisers give poor advice. Indeed, the FSA has found some potentially higher-risk products on which standards of advice and understanding seem strong.
Chris Cummings, director general of the Association of Independent Financial Advisers, says this is the part of Briault’s speech which should be highlighted.
He points out the quality of advice is difficult to measure and small samples can often be misleading.
Cummings advises IFAs to read Briault’s speech but says they should not “leap to the conclusion it is entirely negative”.
He says the FSA is just highlighting one or two areas which need reviewing, such as equity release where there needs to be clear advice, strong management and training.
While AIFA supports the FSA messages on improving standards, Cummings says Aifa does not want to “tar the industry with one brush” by giving blanket statements.
He says IFAs should review their systems and controls in light of Briault’s comments.
Briault also discussed the issue of phoenix firms yesterday – those which seek to disappear and then re-establish themselves without meeting their liabilities to customers from previous enterprises – and said the FSA is taking a decisive approach.
“We have successfully thwarted 12 attempts at phoenixing in the last year,” he added.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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