Independent Financial Advisers (Regulation)

Claire Perry Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

The debate might be in danger of becoming a love-in. [Interruption.] Thank you very much. The hon. Member for Devizes (Claire Perry) was making an open-arms gesture, but I do not know whether I want to go down that route. If détente breaks out, I for one will be delighted. I have been contacted by a number of individuals and groups who have significant concerns about the impact of the retail distribution review.

The review purports to set new parameters for this important sector of our economy, and regulation is at its heart. The chief executive of the Financial Services Authority characterised the review under three main headings, which the hon. Member for Wyre Forest (Mark Garnier) set out—the need for a transparent and fair charging system, greater clarity on the type of advice offered, and a better qualification framework for advisers. I have no quarrel with the first two points. We may differ a little about the content.

It is right that IFAs must disclose their charging structures to clients up front and in writing, so that the client has the information in good time, before the advice process starts. It is right that the IFA must also agree and disclose the total charges that the client will incur as soon as those are known. It is right that, from 1 January 2013, IFAs will be able to make an ongoing charge only where they provide an ongoing service. It is also right that from 1 January 2013, product providers will no longer be able to offer commission on their products, and advisers will no longer be able to receive commission set by product providers. That is just hiding the charges within the commission. The major concern on which I think all participants in the debate agree, however, is the concern of constituents who have contacted me regarding the so-called better qualifications for those who work in the market.

One should not automatically be afraid of higher qualifications for individuals who work in this important sector, but the quality of the debate has not been helped by the tactless, ill-informed and unwise comments of the Financial Secretary to the Treasury, who caused great anger among IFAs during a debate in Westminster Hall, when he compared the current level 3 minimum qualification for advisers to that of a McDonald’s shift worker.

[Claire Perry (Devizes) (Con)]

Does the hon. Gentleman agree that, by focusing so narrowly on qualifications, we miss one of the most important things in any investment industry—experience and a track record? By narrowly defining what we think of as the appropriate qualifications, we completely ignore the experience that many IFAs bring to their positions. They will be forced out by such regulation.

[Mr McCann]

I agree entirely, and I shall address that point a little later. It is why my constituents and I were so angered by the comparison of the current level 3 minimum qualification to that of a McDonald’s shift worker. It is, indeed, an insult to the many of thousands of people who work for that company—a company whose products, looking around the Chamber this evening, I am sure a few people have sampled.

--- Later in debate ---

[Guto Bebb]

I accept that point. In particular, I believe that those who are less wealthy in our society will be discriminated against, even though there should be greater encouragement for them to save than other people. That issue relates directly to the damage to choice.

Although I share the Treasury’s view that there is a need to ensure that advice is of a high quality and accept that there has been mis-selling and bad advice—I do not argue against the need for a degree of regulation—it is difficult to accept proposals that even the FSA accepts will result in a reduction in the services that are available to the public. In particular, I remain unconvinced of the merits of the examination process being the be-all and end-all. Are structured learning and examinations really a substitute for experience, integrity and honesty? If I were looking for a financial adviser, those qualities, rather than an exam, would be the first on my list.

[Claire Perry]

Does my hon. Friend agree that one way of taking the matter forward is to allow consumers to decide? We all believe in consumer choice. If the proposed laws were passed and financial advisers had to have letters after their names, we could have a grandfathering clause so that the consumer had a choice. They could go with experience or with somebody who had sat the exams under the new regulations.

[Guto Bebb]

There is a lot of merit in that argument, and I would be encouraged if the FSA were to consider such an approach.

As a Member who represents a rural community, I am well aware that the change will have a much greater impact on smaller financial advisers. After all, the cost of regulation is estimated at about £6,000 per adviser. That could be taken as being reasonable in the context of a large, city-based financial advice firm, but for small firms in my constituency such a regulatory burden could be the difference between remaining in business and leaving business.

At a time when the coalition Government are stating clearly that they want the private sector to create jobs, and that they want to get rid of the red tape and bureaucracy that have stifled a generation of jobs in small businesses, I find it odd that the financial advice sector is being earmarked for different treatment. The financial advisers to whom I have been talking support the coalition fully in trying to reduce the red tape and bureaucracy that small businesses face, but they would like to be included in the discussion.

On rural services, we in Aberconwy have suffered in many ways, such as the closure of small post offices. We have also seen the legal aid franchise service stopped for the time being, creating a real threat of no legal aid services being available in any of the small towns in my constituency. I therefore believe that we should be very concerned about the further attack on small businesses in rural communities that we are discussing this evening.

In many small market towns, financial advice is part and parcel of what people have come to expect. When they go into town on market day, they can do their banking and go to the post office, the local shop and the solicitor, but they can also go to the financial adviser. It is not acceptable that people who live in a rural community will have to drive to the nearest large town, or even perhaps use the banks instead. Banks in rural communities, and certainly in my constituency, are now nothing more than counter services. It is a real problem that services in rural areas are under threat.

My hon. Friend the Member for Ipswich (Ben Gummer) made the point about rural services very strongly in the Westminster Hall debate, and I agree with him, but I would go further. In Aberconwy, many professional firms work through the medium of Welsh. If rural financial advice services are taken away from parts of my constituency, people will lose the ability to go to a local financial adviser and deal with their problems in the language of their choice. People in my community switch between Welsh and English in the same way that people go into a café and choose coffee or tea—it is quite natural for people to use their own language when dealing with their own affairs. I wonder whether larger concerns in more anglicised towns on the coast, or further away in Cheshire, will take into account the need to provide a Welsh-speaking service.

On discrimination against older financial advisers, I question why no grandfather rule is proposed. Why are we not willing to consider experience as being of importance? I shudder at the thought of leaving people in my constituency dependent on the banks rather than having an IFA. If having an independent adviser is good enough for some people in our society, it should be good enough for people in my constituency. The proposals should be reconsidered, and I endorse the call for the FSA to think again about the damage that it is doing to a very important service in my communities.