Independent Financial Advisers (Regulation)

Geoffrey Clifton-Brown Excerpts

Monday 29th November 2010 Commons Chamber

[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. complaints about IFAs 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 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.