The chairman of the Association of IFAs led a blistering attack on the Financial Service Authority (FSA) at the association's annual dinner last night.
John Gummer told the FSA “you do not make good law by bad cases” and said the concept of principles based regulation was “a very dangerous master” adding: “interpretation of principles is a very dangerous and a very difficult thing to do.”
And he led the attack on any attempt to make financial advisers switch to fees if they want to keep the title of independent stating that without commission those on lower incomes would simply be forced to buy generic products which were no good for their personal circumstances. He said there was a fundamental difference between those who were used to paying for advice, receiving it and benefiting from it and those who sort advice because they did not know what to do and were unlikely to be able to afford an up-front fee. Gummer said: “We must make the middle class regulators of our nation understand that most people have a different experience.”
Gummer said he expected the retail distribution review to fully reflect all forms of distribution in the market and that such a review would also include the practices of the banking sector.
He also highlighted flaws with FSA research attacking the regulator for giving a misleading impression of IFAs, Gummer referred to recent research in which the regulator allegedly pointed to failures by IFAs over the advertising of financial products but said when AIFA investigated further it found those incidents where matched by other sections in the financial services industry but that the information had been presented by the FSA in such a way that IFAs had been “pilloried” for the failures of all.
Gummer said: "When Parliament set up the FSA it did so on the basis of a fundamental law which was that the regulator could not regulate without discussion with the industry”
He said the regulator was failing to do this stating his belief that the industry was increasingly receiving “regulation through speeches.” He added: “It is not sufficient to assume that if it is in a speech it will be read and understood.”
His speech follows a fractious couple of weeks in terms of the relationship between AIFA and the FSA. AIFA has stated previously it is taking the retail distribution review very seriously and has set up a working group to tackle any issues raised by the regulator. Meanwhile a string of high ranking officials from the FSA, in particular Clive Briault, managing director of retail markets, have made comments suggesting the regulator wants to force financial advisers to charge fees in order to keep their independent status. And Ed Balls appeared to throw his support behind the FSA in a speech last week to the Association of British Insurers Saver Summit when he said he welcomed the regulator's review of distribution and Briualt's assertion that the current business model does not work well.
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