29 November 2010
Cotswolds MP Geoffrey Clifton-Brown spoke out in Parliament last night (Monday 29 November) on behalf of a number of Independent Financial Advisers (IFAs) who had contacted him recently.
A debate was held on the regulation of IFAs, specifically on proposals by the Financial Services Authority (FSA) that will have serious consequences for the provision of financial advice both in the Cotswolds and Nationwide.
The new regulations follow as a result of the Retail Distribution Review, which was launched back in 2006, and will require all IFAs to attain a new qualification by 31st December 2012, as well as replacing the existing commission payments with a fee-based model, along with a number of other measures.
It is estimated by the FSA themselves that up to 20% of the 29,000 IFAs currently in existence could leave the industry as a result. Other independent estimates have put the scale of loss at between 30% and 50%. The loss of thousands of IFAs will seriously affect the provision of financial advice to millions of people nationwide but will particularly affect those in rural areas, such as the Cotswolds, where many banks have closed their branches and who, as a result, already face reduced access to financial advice.
Commenting during the debate Mr Clifton-Brown stated, “I represent a rural area, and I know that banks have closed many of their branches in the high streets of my small market towns. If the IFAs are driven out as well, a lot of my poorer constituents will be left without any form of independent financial advice at all, at a time when the banks, if they are there at all, are offering a reduced service. “
Speaking after the debate the MP commented, “I hope that the FSA will listen carefully to what was said in today’s debate. IFA’s play a crucial role in providing vital financial advice to many people in the Cotswolds, and steps must not be taken which threaten this provision of services.”
“Asking people, many of whom have been in the business for decades, to take new qualifications seems entirely unnecessary. IFA’s accounted for just 2% of complaints to the Financial Ombudsman Service in 2010, compared to the banks at 61%. I cannot think of a single other professional body whose members would have to obtain a retraining qualification halfway through their careers and I strongly believe we need to have a rethink on this matter.”
FULL TEXT OF GEOFFREY'S SPEECH
Geoffrey Clifton-Brown (The Cotswolds) (Con): I will speak very briefly. I will chuck away my notes, and see if I can do better than six minutes. I am delighted to be able to speak in the debate. I was urged to do so by two constituents in particular-Roger Clark, who is listening to the debate not far away, and Mr William Dixon-but others have written to me as well.
The number of IFAs has fallen from 32,000 to 29,000 in the last two years. When Hector Sants, the excellent and much revered and admired chairman of the FSA, appeared before the Treasury Committee last week, he estimated that between 10% and 20% of IFAs would go out of business as a result of the RDR provisions. I ask Mr Sants this: who are we-who is he-to put 5,800 companies out of business with a stroke of the pen, and what is the problem that needs fixing?
Many Members have quoted the figures this evening. IFA complaints to the financial ombudsman's office: 2%, of which 39% are upheld. Complaints about the banks: 61%, of which 50% are upheld. No doubt my hon. Friend the Minister will say that that is because the banks offer a wider range of services. Of course they do, but I do not think that that explains such a large disparity.
I want to make three points. The first relates to the qualifications and credit framework level 4 qualifications. I am a qualified chartered surveyor, but I cannot think of a single professional body whose members would have to obtain a retraining qualification halfway through their careers. My hon. Friend and neighbour the Member for West Worcestershire (Harriett Baldwin) mentioned nurses, and other hon. Friends have mentioned publicans. None of those have to retrain.
Let me say one or two things about these exams. I agree with others that there should be grandfather rights, and I think that the implementation should be put off for five years. As we all know from the home information pack debacle, it takes time to implement exam regimes of this kind. I think that 31 December 2012 is too soon. I also think that it would be perfectly reasonable to ask new entrants to the IFA profession to undergo the exams, but to give grandfather rights to existing practitioners, many of whom have had many years' experience.
I understand that two kinds of qualification will be granted under the new regime: a restricted qualification and an independent qualification. Someone will go to an IFA who will say, "I can advise on mortgages but I cannot advise on pensions, because I have only a restricted qualification." I think that that is thoroughly unsatisfactory.
The second issue I want to talk about briefly is commission-based product withdrawal and the accusations that it can lead to practitioner bias or product bias. The Financial Services Authority asked Charles River Associates to undertake a survey into the matter, and he concluded that
a fee-based model
I also agree with those who said it will favour the wealthy in society and put the poor at a disadvantage, because the poor cannot afford to pay this fee up front, while the idea of phasing it in over a number of weeks or months would be unfair to the IFAs. That proposal is therefore not very sensible either.
The third issue I want to raise is the cost of compliance. Two years ago the cost was estimated to be £680 million; last year it was estimated to be £1.4 billion; today it is estimated to be a staggering £1.7 billion. That is £6,000 for every practitioner. For a sole trader or a small business, that is a huge amount of money, while for large IFAs with a number of partners it does not matter quite so much. I therefore urge my hon. Friend the Financial Secretary to consider very carefully what has been said today. I cannot remember a debate during my entire 18 years in Parliament where there has been such consensus of interest and so many Members have attended when they do not have to be in the Chamber as there is not a three-line Whip.
I urge my hon. Friend to listen to what has been said tonight, and I urge the FSA to think again, and to ask itself what the problem is that needs fixing. These are all small businessmen and small traders; they are precisely the people we were saying throughout the election campaign that we wanted to help, yet these proposals of ours are likely to put large numbers of them out of business.
Finally, I want to refer to the point made by my hon. Friend the Member for Aberconwy (Guto Bebb). I represent a rural area, and I know that banks have closed many of their branches in the high streets of my small market towns. If the IFAs are driven out as well, a lot of my poorer constituents will be left without any form of independent financial advice at all, at a time when the banks, if they are there at all, are offering a reduced service.
My hon. Friend the Financial Secretary is a reasonable man, and I ask him, please, to listen carefully to what has been said tonight. We need to have a rethink on this matter.
9.22 pm
| Hansard
A debate was held on the regulation of IFAs, specifically on proposals by the Financial Services Authority (FSA) that will have serious consequences for the provision of financial advice both in the Cotswolds and Nationwide.
The new regulations follow as a result of the Retail Distribution Review, which was launched back in 2006, and will require all IFAs to attain a new qualification by 31st December 2012, as well as replacing the existing commission payments with a fee-based model, along with a number of other measures.
It is estimated by the FSA themselves that up to 20% of the 29,000 IFAs currently in existence could leave the industry as a result. Other independent estimates have put the scale of loss at between 30% and 50%. The loss of thousands of IFAs will seriously affect the provision of financial advice to millions of people nationwide but will particularly affect those in rural areas, such as the Cotswolds, where many banks have closed their branches and who, as a result, already face reduced access to financial advice.
Commenting during the debate Mr Clifton-Brown stated, “I represent a rural area, and I know that banks have closed many of their branches in the high streets of my small market towns. If the IFAs are driven out as well, a lot of my poorer constituents will be left without any form of independent financial advice at all, at a time when the banks, if they are there at all, are offering a reduced service. “
Speaking after the debate the MP commented, “I hope that the FSA will listen carefully to what was said in today’s debate. IFA’s play a crucial role in providing vital financial advice to many people in the Cotswolds, and steps must not be taken which threaten this provision of services.”
“Asking people, many of whom have been in the business for decades, to take new qualifications seems entirely unnecessary. IFA’s accounted for just 2% of complaints to the Financial Ombudsman Service in 2010, compared to the banks at 61%. I cannot think of a single other professional body whose members would have to obtain a retraining qualification halfway through their careers and I strongly believe we need to have a rethink on this matter.”
FULL TEXT OF GEOFFREY'S SPEECH
Geoffrey Clifton-Brown (The Cotswolds) (Con): I will speak very briefly. I will chuck away my notes, and see if I can do better than six minutes. I am delighted to be able to speak in the debate. I was urged to do so by two constituents in particular-Roger Clark, who is listening to the debate not far away, and Mr William Dixon-but others have written to me as well.
The number of IFAs has fallen from 32,000 to 29,000 in the last two years. When Hector Sants, the excellent and much revered and admired chairman of the FSA, appeared before the Treasury Committee last week, he estimated that between 10% and 20% of IFAs would go out of business as a result of the RDR provisions. I ask Mr Sants this: who are we-who is he-to put 5,800 companies out of business with a stroke of the pen, and what is the problem that needs fixing?
Many Members have quoted the figures this evening. IFA complaints to the financial ombudsman's office: 2%, of which 39% are upheld. Complaints about the banks: 61%, of which 50% are upheld. No doubt my hon. Friend the Minister will say that that is because the banks offer a wider range of services. Of course they do, but I do not think that that explains such a large disparity.
I want to make three points. The first relates to the qualifications and credit framework level 4 qualifications. I am a qualified chartered surveyor, but I cannot think of a single professional body whose members would have to obtain a retraining qualification halfway through their careers. My hon. Friend and neighbour the Member for West Worcestershire (Harriett Baldwin) mentioned nurses, and other hon. Friends have mentioned publicans. None of those have to retrain.
Let me say one or two things about these exams. I agree with others that there should be grandfather rights, and I think that the implementation should be put off for five years. As we all know from the home information pack debacle, it takes time to implement exam regimes of this kind. I think that 31 December 2012 is too soon. I also think that it would be perfectly reasonable to ask new entrants to the IFA profession to undergo the exams, but to give grandfather rights to existing practitioners, many of whom have had many years' experience.
I understand that two kinds of qualification will be granted under the new regime: a restricted qualification and an independent qualification. Someone will go to an IFA who will say, "I can advise on mortgages but I cannot advise on pensions, because I have only a restricted qualification." I think that that is thoroughly unsatisfactory.
The second issue I want to talk about briefly is commission-based product withdrawal and the accusations that it can lead to practitioner bias or product bias. The Financial Services Authority asked Charles River Associates to undertake a survey into the matter, and he concluded that
"there was no evidence that moving to"
a fee-based model
"to the exclusion of a commission would lead to benefits since consumers choosing to pay on a fee basis do not receive better advice than those opting for a commission basis."
I also agree with those who said it will favour the wealthy in society and put the poor at a disadvantage, because the poor cannot afford to pay this fee up front, while the idea of phasing it in over a number of weeks or months would be unfair to the IFAs. That proposal is therefore not very sensible either.
The third issue I want to raise is the cost of compliance. Two years ago the cost was estimated to be £680 million; last year it was estimated to be £1.4 billion; today it is estimated to be a staggering £1.7 billion. That is £6,000 for every practitioner. For a sole trader or a small business, that is a huge amount of money, while for large IFAs with a number of partners it does not matter quite so much. I therefore urge my hon. Friend the Financial Secretary to consider very carefully what has been said today. I cannot remember a debate during my entire 18 years in Parliament where there has been such consensus of interest and so many Members have attended when they do not have to be in the Chamber as there is not a three-line Whip.
I urge my hon. Friend to listen to what has been said tonight, and I urge the FSA to think again, and to ask itself what the problem is that needs fixing. These are all small businessmen and small traders; they are precisely the people we were saying throughout the election campaign that we wanted to help, yet these proposals of ours are likely to put large numbers of them out of business.
Finally, I want to refer to the point made by my hon. Friend the Member for Aberconwy (Guto Bebb). I represent a rural area, and I know that banks have closed many of their branches in the high streets of my small market towns. If the IFAs are driven out as well, a lot of my poorer constituents will be left without any form of independent financial advice at all, at a time when the banks, if they are there at all, are offering a reduced service.
My hon. Friend the Financial Secretary is a reasonable man, and I ask him, please, to listen carefully to what has been said tonight. We need to have a rethink on this matter.
9.22 pm
| Hansard
