NEWS
News
Speeches
Chris Cummings, Director General for AIFA - Retail Distribution Review Conference.
Date: June 27th 2007
Location: London
The key questions to be addressed today are: will consumers get a better deal as a result of these proposals? Will the market provide better quality advice for consumers? Will they be able to access that advice more easily and, most importantly, will they be able to recognise who is offering them advice and who is just dressing up information to look like personal, professional and accountable advice?
We were promised a review of Retail Distribution but have ended being dangerously close to yet another review of the advisory community. Whilst it may be considered flattering to be the focus of so much attention, is this where the majority of consumer detriment is found?
Consideration of the complaints received by FOS may suggest that other sectors should have been the focus of at least some attention. Where are the proposals for non-advised sales? Where are the challenges to reform sales behaviour in banks? Are we planning improvement or just change?
AIFA’s views have been clear in this process:
- We want to see clearer labelling of what is, and what is not advice – do these proposals help consumers?
- We want to see rewards for more professional advisory firms. The clear marketing advantage that better firms have over those less so needs to be matched by regulatory dividends. We want to see professional standards of advisory firms increase – and for firms who set higher standards to be recognised for this bar-raising behaviour.
- We want consumers to be able to choose how they pay for advice – not regulators. Firms who see a commercial advantage will move to the remuneration structure that suits their clients. There is no “right” way to pay for advice. In the UK we benefit from a mixed economy of payment options: pure fees, fee-offsetting, commission, and factory gate pricing all already exist. The market, through consumer choice, will reward the most consumer-focused model.
- We want to see a fair interpretation of the statute of limitations introduced for the financial services industry. This is not to bar consumer complaints but to encourage consumers to recognise that they have responsibilities as well as rights when making financial choices.
We are pleased to see that FSA has addressed many of our concerns and we have proposals that address our views. There are proposals to recognise firms who invest more in their people and who wish to be seen as offering the best in financial advice. These will be able to claim the title of Professional Financial Planner. We are told that regulatory dividends will follow. This is a welcome move.
Second, General Financial Advisers are proposed for those who wish to occupy this space. The financial services equivalent of the medical General Practitioner.
Third, and most worrying we have proposals to create a Primary Advice service. Simple products, simple advice process, with reduced levels of suitability and access to the Ombudsman based on process not output. Surely, we can all see the potential for consumer detriment in these plans? Products based around what “people like you normally buy” reminds me of the statement: “people like you normally buy PPI with their personal loan!” Poor value products offered to those who think they’ve had advice and yet find they can’t even rely on the Ombudsman when they need help.
I am sure this third way is being supported by many organisations. But haven’t we been here before? Haven’t we seen what happens? Haven’t we lived through the pain and incredible reputational damage? Let us not remake the lessons of the past.
Far more positively, the FSA’s proposals offer an opportunity to bring about a real 15 year long stop and other break points. This is welcome and will give greater certainty to firms without infringing on consumers rights.
I am also heartened to see AIFA’s work on the Stakes in the Ground project recognised as a way of recording good practice and preventing regulatory hindsight.
FSA have said that people don’t access advice because it is not affordable. I simply don’t believe this is the case and even if it were, do these proposals make financial advice more affordable – or less? I find it hard to support plans that restrict access to full financial advice by making it so expensive that only the rich can afford it. We are told in this DP that the costs of the proposals will be so much that the number of firms will reduce.
What of the European dimension? Will the Commission’s plans for a more integrated financial services market de-rail the proposals in this review? We have already seen the Menu and IDD dropped because of the commission’s views on gold-plating. Let us not waste millions of pounds in needless speculation and change before we understand what the Commission will demand of the UK.
Finally, let me say this: the financial services industry still does not have the reputation it should as the second biggest industry in the UK. Looking seriously at these proposals, where will we be in ten years? Will these proposals have materially benefited our consumers or will they have added more confusion, most cost and reduced access? I think until we have a better idea of these answers we embark on this journey at our risk.
Spring Digital