Independent Financial Advisers

Debate between Dan Rogerson and Mark Hoban

Wednesday 20th October 2010 Westminster Hall

[Dan Rogerson (North Cornwall) (LD)]

The Minister is clearly outlining that risks are involved in the advice given by independent financial advisers. Does he agree that a risk-based approach, which is responding to complaints and which might require longer-standing financial advisers to undergo retraining, could be a better way of tackling the issue?

[Mr Hoban]

That is an interesting point, but my hon. Friend should bear in mind that with some products, which might be long term, it can be some time before an issue emerges. If people buy a product in their 30s—a pension product, for example—they might only find out in their 60s that they had been mis-sold something. There is a real issue about looking at complaints records in that way.

The retail distribution review aims to address the structural problems in the distribution of retail financial products, such as conflicts of interest, transparency and professional standards. Although the RDR is the responsibility of the FSA, I fully support its aims—all colleagues should support those objectives. I hope that the RDR will lead to increased confidence, simplicity and clarity in the financial advice sector.

On professionalism, hon. Members are familiar with the fact that the rules seek to ensure that all financial advisers adhere to common professional standards, including an increased minimum qualification level, effective maintenance of knowledge and subscription to a code of ethics. The current minimum financial adviser qualification is at the same level as a diploma in shift management offered by McDonald’s. We should all reflect on that for a moment: the products being sold by IFAs are infinitely more complex and more long-lasting in their effect than a Big Mac.

The rules aim to improve trust and the service offered to consumers. Consumers will have confidence that their financial adviser is up to the job. Investment advice will be seen as a professional activity, financial advisers will have a new status and fresh talent will be attracted to the industry. The FSA reports that, rather than being put off by studying, many financial advisers are going on to obtain more advanced qualifications than those required by the RDR. One of my constituents, who is an IFA, has said that when the FSA raised the minimum bar he wanted to go even further, to demonstrate that his qualifications, knowledge and technical expertise went beyond those of his peers. The FSA also noted that take-up for financial planning degree courses has increased.

I know that many financial advisers have concerns about meeting the increased qualification standards required by the RDR, but almost half of advisers already meet the required level, with two years to go before the RDR is introduced.

Many financial advisers feel that the new rules should be “grandfathered,” so that those advisers with experience are exempt. However, how do we know how good those advisers are? Someone might have been in the industry for some time, but is that necessarily a guarantee of the technical expertise and quality of advice?

Equitable Life

Debate between Dan Rogerson and Mark Hoban

Tuesday 20th July 2010 Westminster Hall

[Mr Hoban]

My views have not changed in that period. An option one gets as a Minister is to drive the process forward further and faster, and to change the approach. What hon. Members will have seen over the past eight weeks, which will become clearer when Sir John’s report is published, is that we have adopted a much more transparent and open approach to the resolution of the problem.

As part of that transparency, I will publish with Sir John’s report the advice provided by his actuaries as well as correspondence he has received on the matter. In the light of the sensitivity of the issue, we must know how he developed his methodology and what has informed his thinking. To restore trust in the process, I want to be as open and transparent as possible about our approach and the losses suffered by policyholders. I believe that that is the best way to tackle the distrust that my hon. Friend the Member for Oxford West and Abingdon referred to in her speech.

[Dan Rogerson (North Cornwall) (LD)]

I am sure that people listening to this debate will be reassured by the approach that the coalition Government are taking, in contrast with that taken by the previous Government. Can the Minister confirm that, in taking into account what the Chadwick report says about the scale of the losses suffered by Equitable members, the coalition Government’s approach to how payments will be judged is new and not built on any of the previous Government’s work?

[Mr Hoban]

I will come on to the commission shortly, if Members will bear with me.

As I said, I want the process to be as open and transparent as possible. I have said to the House that when we publish Sir John’s report, I will provide a substantive update on the next steps in the process. We have already set out the important steps in how we will take the work forward, and some points about how the scheme will work.

My hon. Friend the Member for High Peak (Andrew Bingham) raised a couple of points in his intervention. I wish to make it clear that there should be no means-testing, and that the estates of deceased policyholders should be included in the scheme. We felt it important to clarify those two issues early on in order to settle some policyholders’ worries, and I am happy to reiterate those commitments today.

I will establish an independent commission that will advise on how best to allocate funds to policyholders and to help develop the scheme design. One of the key aspects of the ombudsman’s recommendations was that any scheme should be independent of Government, and I agree with the thinking behind that recommendation. The commission will be given a remit that will allow it truly to add value to the process.

The process will be time-consuming, and there is the potential that payments will be delayed if we ask the commission to start the process of determining relative loss from scratch. However, we want it to play a role in developing a fair outcome for all policyholders.