Moreover, the new prudential requirements will place undue burdens on firms during a dire economic climate and will lead to increased costs, and risks reduced access to advice for consumers.
Chris Cummings, Director General of AIFA, said: “The FSA had a golden opportunity to revitalise trust in financial services at a time when consumers need our help the most. But the new proposals perpetuate historic flaws in financial services. Most importantly, consumers want clear blue water between those who are on their side and those who have an obligation to sell a product.
“The term ‘sales adviser’ only muddies the water still further and will leave many consumers none the wiser about the type of service they are receiving. We are disappointed that the FSA has thrown away the clarity of the proposals made in the Interim Report, which received the support of leading consumer groups and the IFA profession.
“While we are still digesting the Statement, it seems that one of the reasons the FSA has changed its stance is its interpretation of MiFID. MiFID was never written to prevent consumers getting a fair deal. If this piece of European regulation is hampering the FSA then we need a full review of the term advice at a European level to make it clear.
“At a time when IFA firms, like other small businesses are struggling to cope with the economic turbulence it is deeply distressing that the regulator is proposing to disproportionately increase firms’ capital requirements. And the move to expenditure based calculations will be detrimental. For example, the potential impact on a firm of 20 advisers with approximately £1.6million costs could see its prudential requirements radically increase from around £10,000 to around £300,000.
“We are yet to see any justification from the FSA as to why this huge increase is being introduced and they could not have chosen a more damaging time. We oppose this proposal and call on that the FSA demonstrate the rationale for making this change.”
Sales and advice
“In today’s Feedback Statement, the FSA states that it wants a simpler landscape for consumers but we are disappointed that it has failed to deliver this clarity. Consumers trust Independent Financial Advisers and we are disappointed that FSA has bowed to pressure from the banking and insurer lobby to allow their sales people to still call themselves advisers.
“We need to rebuild trust in the financial services industry. To help do so the FSA should have taken this opportunity to clearly differentiate advice from sales. It has not done this clearly enough and we are still left with the confusing middle ground where sales people, who the FSA say are ‘obliged’ to sell a product can hold themselves as ‘advisers’.
“These reforms don’t make it clearer for consumers; the sales advice term is ambiguous and it will further confuse consumers about who they are dealing with. All the consumer groups welcomed the previously proposed split between sales and advice. We must ask why the FSA has now changed its position.
The independent label
“The requirement to give comprehensive and fair analysis of the relevant market and provide unbiased, unrestricted advice to consumers has always been the hallmark of Independent Financial Advisers. It sets us apart from the sales community and is why consumers trust us. There must be no new costs associated with this move from the FSA.
“Consumer groups such as Which? have consistently told consumers that if they want independent, impartial advice the best route to go down is via an IFA. This is still the case.
Professional standards
“The story of the past ten years has been the continued rise in the professional standards of the IFA profession so that we can be seen in the same category as lawyers and accountants. However, this should not be at the expense of driving out good advisers from the profession.
“FSA need to re-think the timescale and cost of introducing new qualifications for those already working in the profession.
Independent Professional Standards Board
“This is not the time for new regulation or new regulators. The new Standards Board threatens to muddy the regulatory scene and risks creating double jeopardy and double cost. We will study details of these proposals and how they might work with existing arrangements, seek members’ views and respond to the FSA before we know the real impact.
Long Stop
“The FSA has missed another opportunity in failing to bring about a long stop to financial services. AIFA will continue to campaign for members to enjoy the same legal protection as every other firm in business.
Regulatory Dividend
“We are deeply disappointed that the FSA has failed to implement the promised regulatory dividend for good firms. All of these proposals simply add to the cost burden of firms. It is time for the FSA to understand that change costs money and firms need to be recognised for good corporate behaviour and supported, not penalized, by their regulator.”
