Independent Financial Advisers (Regulation)

Debate between Tony Cunningham and Mark Garnier

Monday 29th November 2010 Commons Chamber

[Mark Garnier]

I trust that the hon. Gentleman is referring to the independent financial advisers, who will have to do that. I will come to that a little later in my speech, if I may, but I will address it specifically.

The point I was making is important because it highlights the significant amount of money being drawn out of the net savings pool of the country. It is only right that the FSA and the regulators should address the problem. They looked into it and surmised that in this marketplace competition is hindered by opaqueness and incentive conflicts, resulting in the interests of firms versus those of customers not being fully aligned. The FSA set up the retail distribution review—RDR—in 2006 to address those problems, and the new rules are due to come into force in January 2013. Specifically, according to the FSA, the RDR aimed to bring about three principal changes. The first was an improvement in the clarity with which firms describe their services to consumers. Secondly, it sought to address the potential for advisers’ remuneration to distort consumer outcomes. Finally, it aimed for an improvement in advisers’ professional standards.

[Tony Cunningham (Workington) (Lab)]

On that final point, I have also had a number of people writing to me. Would the hon. Gentleman agree that one of the overriding concerns—I have had letters from people with 29 or 30 years’ experience—is that experience does not seem to count for anything?

[Mark Garnier]

That is a recurring theme and I shall come on to that point, but the hon. Gentleman is right to raise it. It has been raised by huge numbers of IFAs who have got in touch with me, my hon. Friend the Member for West Worcestershire and with many other Members.

The three aims that the FSA has talked about are, I believe, laudable in principle, overall. It is not our intention tonight to derail the retail distribution review, which will improve standards for consumers. I suspect that not a single professional in the industry would disagree with the overall principles. Indeed, Which?, the consumer champion, strongly supports the measures contained in the RDR, and states that its members

“firmly believe that the IFA industry is best placed to offer this advice”.

However, the devil is, as always, in the detail.

In addressing the problems, the FSA has, through the RDR, introduced issues that disproportionately affect the IFA community. The IFA trade organisation, the Association of Independent Financial Advisers—AIFA—suggested in evidence to the Treasury Committee that although some 30% of IFAs strongly supported the RDR and 40% were rather ambivalent towards it, 30% would not put up with the RDR. The 30% who are against the RDR suggest that it would be better to leave the industry altogether, so the community of IFAs would shrink significantly.