Independent Financial Advisers (Regulation)

Debate between Brian H. Donohoe and Mark Garnier

Monday 29th November 2010 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

I beg to move,

That this House has considered the matter of regulation of independent financial advisers.

I am delighted that my hon. Friend the Member for West Worcestershire (Harriett Baldwin) and I have secured this debate. As all hon. Members will know, this country finds itself in a dire financial situation, which extends deep into the private lives of many of our citizens. This country has the lowest personal savings ratio in the G20 and the highest level of personal debt, with half of all the personal debt in the EU borne by the inhabitants of these islands. We face a well-known problem of pensions underfunding, involving not just a deficit on pension liabilities but the fact that people are not putting enough aside for their retirement. Mortgages were taken out at the height of the boom, in some cases at levels higher than 100% of the value of the property to which they relate, and mortgage lenders worry about the next time bomb that may hit our economy—a trend towards interest-only mortgages. These are mortgages where the borrower hopes that inflation and an opportunity to downscale will pay off their mortgage. We also have a housing market in which many commentators still consider there is more readjustment to come.

It is against that background that we are debating the regulation of an important group of professionals, namely independent financial advisers. I am particularly keen to talk about that group because if we are even to begin to deal with the problems that I have outlined, we need a resource of professionals who will be able to spread the word and give sound financial advice to the wider population. The marketplace for retail investment advice in the UK is very diverse, involving banks, building societies, stockbrokers and some 33,000 independent financial advisers, as well some other players. It is fair to say that there have been problems in the past, and the Financial Services Authority suggested in its evidence to the Treasury Committee last week that there was and still is a significant amount of mis-selling every year; a figure of some £250 million a year was volunteered, but that is based largely on assumption and extrapolation from previous mis-selling scandals.

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

A number of constituents have come to me because they are very concerned about what the hon. Gentleman is talking about, as they are going to have to revalue themselves and go through another examination. Can he shed some light on why that should be?

[Mark Garnier]

I trust that the hon. Gentleman is referring to the independent financial advisers, who will have to do that. I will come to that a little later in my speech, if I may, but I will address it specifically.

The point I was making is important because it highlights the significant amount of money being drawn out of the net savings pool of the country. It is only right that the FSA and the regulators should address the problem. They looked into it and surmised that in this marketplace competition is hindered by opaqueness and incentive conflicts, resulting in the interests of firms versus those of customers not being fully aligned. The FSA set up the retail distribution review—RDR—in 2006 to address those problems, and the new rules are due to come into force in January 2013. Specifically, according to the FSA, the RDR aimed to bring about three principal changes. The first was an improvement in the clarity with which firms describe their services to consumers. Secondly, it sought to address the potential for advisers’ remuneration to distort consumer outcomes. Finally, it aimed for an improvement in advisers’ professional standards.