Independent Financial Advisers (Regulation)

Michael McCann 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.

[Dr Andrew Murrison (South West Wiltshire) (Con)]

The hon. Gentleman is concerned about the QCF—qualifications and credit framework—level 4 qualification, but is he not concerned also about the impact of the measure on the need for continuing professional development outlined in the RDR, and the fact that it is likely to disadvantage small operators who will not be able to rely on the critical mass of a large organisation when taking time off—probably about a week every year—to conduct CPD?

[Mr McCann]

I agree entirely. The measure will impact on small businesses, not the big part of the sector, and that is why the Financial Secretary should have been mindful of the commitments people have to make to gain qualifications in the sector. One IFA, in particular, heard the Minister’s comments and blogged:

“I’ve just spent 70 hours revision to pass RO1. Nobody has paid me for my lost time. Nobody has asked me 1 of the 100 questions in the exam for the last 22 years. This guy”—

the Financial Secretary—

“needs to get in the real world.”

That leads me to my main contention: the proposals and timetable to increase the qualifications needed to participate in this sector of the economy are not sensible. Exams and qualifications in the sector are not new, but the proposal to introduce new rules that effectively force people to re-sit exams without taking account of their experience or, most importantly, clean regulatory record is patently unfair. Moreover, the sector will not be able to absorb the cost of revalidation; instead, as other contributors have said, it will be passed on to the customer in the shape of higher fees.

Others have also mentioned that many professional groups in the United Kingdom are not asked to revalidate, so I seriously wonder why we are trying to isolate this particular sector. Why, as other hon. Members have asked, do we want to take away that valuable experience from that important part of the economy?

Our time is limited, and there is a limit of six minutes on each contribution, but I too want to mention one individual who has contacted me in the lead-up to the debate. He is an old friend of mine, a next-door neighbour, and it is important that we bring our experiences to the House when we discuss such issues. Jim Hunter sells financial products, and he contacted me, but he did not complain about the need for transparency, fairness or greater clarity. In fact, having done business with Jim, I know that he had all those ingredients many years ago. Indeed, I am sure that many people who have contacted hon. Members are in exactly the same boat.

Jim was talking to a colleague recently at a meeting. The gentleman is 60 years old, with more than 30 years’ experience in the industry, and if he sat the proposed exams he would be 63 before he finished them. Jim explained that that person would be lost to the industry and have to retire before his time, because he would not study at that time of his life. There are many people like that, trying to make a living for themselves in difficult times, and that ability to earn a living in this important part of our economy will effectively be taken away from them without any real benefit to the economy itself.

[Tracey Crouch]

Does the hon. Gentleman agree that, although the RDR was introduced with every good intention, further work should be suspended until there has been a full cost-benefit analysis of its impact on the IFA community and, indeed, on consumers?

--- Later in debate ---

[Mr McCann]

I do not think that that point is unreasonable at all, and it could be taken on board.

One point has not been mentioned in the debate, but it is an important one to make in the last minute of my speech. The final thing that my constituent said to me is that many IFAs work on trust. That trust takes a long time to build up with individuals. If you take that experience out of the sector, the trust will go. People will be uncomfortable about going to new IFAs because they will have to rebuild the trust all over again. We should be mindful of that.

The RDR is an important piece of work and it is important that we get it right. For that reason, I urge the Minister and members of the Select Committee to take the comments away, recognise the need for common sense to prevail and work with the industry to come to a common-sense solution.