How will IFAs be represented in 2015? Either we continue to mitigate any proposal’s worst excesses or we re-establish a number of principles which become red lines over which the IFA sector only moves in extremis. This is the difference between Apfa’s reign over the past 15 years and the 10 years in which I served the community in the 1990s.
The benefit of fighting by principle is that over time you establish areas where the regulator treads with care and a few places they do not tread at all. Principles become the skeleton on which your body is founded, and it is clear where you stand, which is usually on the moral high ground. Mitigate and you become a spineless jelly unable and unwilling to fight.
Lost Principle No 1: Polarisation, which supported the principle of consumer clarity. It stopped banks and direct salesforces pretending to be independent. Powerful forces did not like this and it was regularly attacked. We held on to it for a decade thanks to support of the Consumers Association who understood the principle we were upholding and backed us, as did the media.
Lost Principle No 2: The use of civil law to settle disputes came up during the Pensions Review. Regulators wanted to give the Pensions Ombudsman wide-ranging powers both to ignore evidence and to make settlements that would not have been countenanced in a law court.
We did not insist that disputes were only settled in court as that would soon become undefendable; but we did insist that the ombudsman mirrored what a civil court would do. By maintaining this principled approach IFAs kept their professional indemnity and the high court agreed with us.
Once Apfa abandoned principle to mitigate proposals, the regulator killed polarisation in under a year, abandoned the long stop and the ombudsman service became its current lottery.
The retail distribution review exposes a number of new and very dangerous principles. First, the FCA is now an active third party in the client/adviser relationship. Second, it can act retrospectively such as by banning trail commission. Third, it has allowed the regulator to define the whole sector solely as a high-value high-service proposition – even though most IFAs do not work that way – and in doing so has removed advice from the common man.
We need to return to principled representation and put the backbone back in the IFA sector.
Garry Heath is editor of The Heath Report