AIFA says FSA showing 'clearer understanding' of IFA sector

The Association of IFAs (AIFA) says the FSA is demonstrating a “clearer understanding” of the advice market.

It says the regulator’s latest feedback statement on its Review of Prudential Requirements for Personal Investment Firms – part of the RDR - suggests it has changed its mind on some issues, including the influence of low capital on a firm's behaviour.

Last year's RDR Discussion Paper proposed the use of risk-based prudential requirements as an incentive to achieve higher professional standards, and to adopt remuneration practices not influenced by product providers.

But AIFA criticised the paper, arguing it failed to address the “real debate” about the purpose and role of capital. Now AIFA says the FSA has altered its views.

Chris Cummings, AIFA director general, says: “Members will be pleased to learn that many concerns raised by AIFA during the discussion period were backed up by the FSA's own research and have subsequently been taken on board by the regulator.

“A clearer understanding of our sector has been demonstrated in the feedback statement.”

Cummings adds: “We were highly critical of the original paper, arguing that it was not just disturbing but contradictory, and in parts extreme.

“We took particular issue with its tone and the casual use of the term ‘mis-selling’ with its negative inferences. The FSA has acknowledged this issue and agreed to use clearer terminology in future.

“As the RDR moves into its next stage, the proposal that Prudential Rules can be used to mitigate what the FSA has called ‘mis-selling’ has been firmly hit into the long grass.”

AIFA says the FSA has also dismissed its own initial assumptions that firms may “deliberately or otherwise” give poor advice knowing they can claim on their Professional Indemnity Insurance (PII).

“AIFA's view was unequivocal; poor advice is due either to incompetence or bad management, both of which can be dealt with by the regulator using existing mechanisms,” Cummings says.

“The FSA's research found no evidence that the current PII requirements for IFA firms are not fit for purpose or that switching from a ‘claims made’ to a ‘business written’ basis is feasible.”

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