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Aifa chair in fresh attack on FSA over Arch Cru, Keydata

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    The chairman of the Association of IFAs has launched a fresh attack on the regulator and others that are laying blame at advisers’ doors over industry scandals such as Arch Cru and Keydata, saying that it would be ‘improper’ for advisers to “second guess” products and providers.

    Speaking at Aifa’s annual dinner last night (13 November), the Right Honorable John Gummer, Lord Deben, also warned that the way compensation was being awarded under the Financial Services Compensation Scheme and through a Financial Services Authority consumer redress scheme risked increasing firm failures in the advisory sector.

    Lord Deben warned the FSA, whose managing director Martin Wheatley, chief executive designate of the incoming Financial Conduct Authority, as in the room, that in the aftermath of failed products Keydata and Arch Cru it has to ask two “very important questions”.

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    He said: “The first is how do we ensure that we don’t have a cost of compensation so heavy that those who have done the right thing are penalised to the degree that they can no longer carry on in business.

    “We cannot have a system in which fewer and fewer people bear bigger and bigger burdens so there’s less people to do the job they ought to do”.

    He warned that the second “crucial” issue to be raised is what can properly be required of a financial adviser.

    Lord Deben said: “If a regulated product from a regulated firm in the UK with a reasonable track record and with a prospectus that meets the requirement now properly laid on prospectuses... misleads the public or changes the terms so that its promise that it was a low risk product becomes untruthful... the fault lies with the company that produces the product.

    “It does not lie with those who properly have relied on regulation, regulator, prospectus and history to recommend that particular product on the basis that is clearly set out - and the reason it doesn’t lie with them is because it doesn’t anywhere else in life.”

    Lord Deben warned that professional advisers cannot “second-guess” the analysts, the experts or “the financial might of a major provider” before they can properly recommend a product.

    He said: “The truth is, it is not proper to ask of a professional adviser a degree of understanding which the regulator himself does not have. And that is at the centre of our concern, not for ourselves but for the future of saving in Britain and I hope very much the regulator will take this to heart.”

    At the event, Aifa members voted to approve the body’s rebrand to the Association of Professional Financial Advisers and voted Alan Lakey as a new member of the association’s council.

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