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Chairman’s speech for FSCP dinner (approx. 10 minute speech)
Tuesday 13 March
7pm at Percento
The Value of Advice and Generic Advice
Thank you John and thank you to all the Panel members for being such excellent guests. I have been told – and I hope you agree with this assessment, that today’s meeting was both constructive and enlightening. At AIFA we feel it is extremely important to build and maintain relationships with representatives from all parts of our market. The Panel, which has proved itself so effective in representing consumers to both the regulator and the industry, is a body whose views we listen to and value greatly, when developing AIFA’s policies.
To those who do not understand the real nature of the relationship between a good IFA and his or her client, it can seem that we should be on opposite sides of the same fence. However, members of the Panel have been quick to realise that there are many areas where we share common ground; and where we are trying to achieve the same outcomes.
In my brief comments this evening I would like to talk about: the value of advice and the Retail Distribution Review, Principles Based Regulation, Treating Customers Fairly, and finally, the need for regulatory accountability.
Let me first turn to one of the areas we feel most strongly about: consumers need to save and invest more to protect their futures. That is not in doubt. And there is much evidence available which confirms what we at AIFA have known all along - consumers who receive financial advice are significantly more likely to be placed in a better financial position and are better protected than those who do not. A recent study by Deloitte, on behalf of the Resolution Foundation, finally produced hard facts to prove this argument. I am sure the Panel will have seen this though we can provide copies if not.
We may have some concerns about the way in which generic advice might be delivered, but we support the concept of the proposed “Generic Financial Advice Service”. And we will offer our assistance to aid the creation of the advice centres. We recognise that this initiative will increase the public's perception of just how valuable a commodity professional advice can be.
And we were also pleased about the inclusion of a working party examining consumer access in the Retail Distribution Review. We are also pleased that FSA has now allowed the Panel to be represented on all of the working parties.
Any move to improve financial understanding and capability among the general public must be a step in the right direction.
However, at the sake of repeating ourselves, we must make it clear that there is a major difference between “generic information” and “generic advice”: the two must not be confused. Information, by its nature is generic, but “advice” implies a personal understanding of someone's individual needs.
We will only rebuild consumers’ confidence in financial services if they are clear about the service being offered: is it “information” or “advice”. There is a marked difference between the two and a marked difference in the liabilities that accrues for the years ahead.
Furthermore, the industry needs to be clear about what liabilities it is being exposed to, if it is to operate any ‘basic advice’ regime mark 2 which may emerge from the Retail Distribution Review. It was the failure of both government and regulator to address these issues which led to the marked failure of the ‘basic advice’ regime mark 1.
Retail Distribution Review
Speaking of the Retail Distribution Review, as I’m sure you discussed today, we support many of its objectives. We are represented on every working group strand and our own working party is developing solutions to some of the issues raised. It is vital that the advice profession contributes to this debate over reputation, professionalism, and of course remuneration. And we must come up with solutions which can be applied across all sectors.
Transparency on charges must apply to IFAs, product providers, banks and building societies. Customers must be treated fairly across the board. I feel sure we stand “shoulder to shoulder” with the Panel on the need for consumers to have access to financial advice, and products and solutions, based on a level playing field.
I gather that this afternoon you heard about a proposal for increasing the transparency of costs, for the consumer, via the development of a factory gate model. To recap, what is provisionally called ‘Agreed Customer Pricing’ would operate in this way: when a customer visits an intermediary, they would agree the service they want from that intermediary and the cost of this service. The insurance company would not have any role in setting the price for intermediary services; nor would it provide any additional payment to the intermediary to incentivise sales of their products.
Our working party and the AIFA Council will need to develop this model further before we can circulate a detailed paper for your comments. However, let me say, that we look forward to working with the Panel on this model and also building a consensus based on consumer choice. AIFA has always believed that consumers should decide how they wish to pay for the advice they receive – fees, factory gate pricing, commission, or by any combination of these – including agreeing a level of on-going payment for on-going advice.
Principles Based Regulation
Perhaps I could now turn to the regulator’s desire to see a move towards a “more principles based regulatory regime”.
We are moving into a new era of regulation by principles. As a trade body, it is our job to move the advice profession forward. But the industry is still waiting for the regulatory dividend. The cost of regulation remains high for our members who, as you know, are mainly small firms: with annual costs of over £6,000 as a direct result of regulation – plus that much again by way of external support. As costs have spiralled, the issue of reducing the financial burden for our members has been a primary concern of ours.
We support the move to principles as long as the FSA can step back and leave firms to manage the process. The regulator says it is more interested in the outcome of the advice process rather than in the process itself. The proof of the pudding is in the eating!
As you know, we also have concerns about industry guidance. We don’t wish to be a second tier regulator; we don’t think guidance should be used to fill regulatory gaps; and we don’t much like being told by the regulator how to manage our business. For example, in order to obtain the regulatory stamp of approval for our guidance, the FSA is proposing that it should be made available free of charge. We already produce information and guidance on many regulatory topics for our members. But these people pay us to belong to their trade body. We do not hand out information for free to those who choose not to join – to do so would be to put our members at a competitive disadvantage as they would be the ones who had spent time and money developing it only go see it being offered, for free, to their competitors.
Next, let me mention Treating Customers Fairly – that FSA initiative which is as sacred as with motherhood and apple-pie – is the first step on the principles ladder. The FSA has set a deadline – the end of this month - by which firms must have implemented TCF in a “significant part of their businesses”. We are firmly behind this initiative but we see the introduction of TCF as an evolutionary process rather than one that must meet an arbitrary deadline. Customer care should be a continuous process - part of the lifetime of a product - not just in place in the run up to the policy being bought.
Finally, let me turn to a key point for us at AIFA: accountability. We are pleased to note that the FSA has ensured it meets its obligations to undertake a cost / benefit analysis when considering new regulatory measures. We are even more pleased that the regulator has been spreading this gospel at a European level. However, we would like to see more work being done on “post implementation reviews”. It is not enough simply to introduce a new piece of regulation, having satisfied oneself it makes sense. It is essential that a review is held to ensure what was planned actually happened. A case in point is that of Depolarisation. We have deep concerns that the regulator will not conduct a full and fair assessment of the impact of Depolarisation. We would be delighted if the Panel would support us on both the individual case but on the general principle. Good regulation, like so much in life, requires an understanding of where one has been if one is to move forward with greatest certainty.
I have spoken for long enough and I’m sure you are looking forward to dinner. So I would just like to say thank you for your time today. The Panel’s agenda is always full and we appreciate the fact that you have allowed us into your busy schedule. I hope we will continue to meet and exchange views with the Panel. It has been an invaluable meeting for AIFA and I hope, John, that you and your members have found it equally beneficial.