The majority of IFAs, particularly smaller firms, will continue to use the Menu and IDD despite the FSA scrapping the documents, according to AIFA.
The trade body has hit out at the FSA’s decision to withdraw its submission to the European Commission which would have made the Menu and IDD (Initial Disclosure Documents) mandatory on top of the MiFID regulations.
However, AIFA says it believes most IFAs will still use the documents to protect themselves and their clients.
Faye Goddard, AIFA says: “Although some of our members may welcome the replacement of prescriptive rules with guidance, which seems deregulatory on the surface, this could create inconsistencies that fail to deliver comparable and transparent information about fees and commissions prior to purchase.
“In practice, complying with the rules without using the Menu template will present a challenge, particularly for small firms. We expect most IFAs to stick to what they know and use the current system as it will provide a safe-harbour.”
AIFA also expressed its concerns that scrapping the menu and IDD will destroy the level playing field on disclosure for those giving advice. The FSA does intend to introduce another disclosure system but this will not be prescriptive.
The regulator says it made its decision following research which found the Menu’s objectives of reducing commission levels and cutting provider bias have not been met. However, AIFA argues the original aim of the documents was to increase transparency for consumers and have a knock on effect of creating awareness of alternative charging structures rather than making changes overnight.
Goddard adds: “While the Menu and IDD may not be perfect, their primary purpose is to disclose key information to consumers in a comparable manner. Consumers should be able to clearly identify the scope of the advice they are receiving; the range of services provided by a firm; and the costs of those services. In a depolarised world, transparency is paramount and the current system maintains a level playing field across the financial services industry.”
AIFA's concerns were backed by IFA Promotion whose chief executive David Elms says it is concerned about what will replace the Menu and IDD.
He says: "Regardless of how they were implemented, we should not lose sight of the fact that these initiatives set out to improve industry reputation in the eyes of consumers. The Menu and IDD provided a level playing between different advice channels and made it clear to consumers that one way or the other advice costs money.
"This inevitably encouraged more advisers to better explain the value of their service and led more consumers to pay for advice by offsetting fees with commission. We look forward to working with the FSA to ensure that any replacement continues to meet the original objectives of the Menu and initial disclosure document.”
Have your say Alex Docherty, Director AD Associates
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