Independent Financial Advisers (Regulation)

Richard Graham Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Matthew Offord (Hendon) (Con)]

The FSA has been held by some observers to be weak and inactive in allowing irresponsible banking to precipitate the credit crunch in 2007, which, as many Members will know, involved the shrinking of the UK housing market, increased unemployment, the public acquisition of Northern Rock, and the takeover of HBOS by Lloyds TSB. I remain fundamentally concerned that we have allowed the same organisation to undertake a review of independent financial advisers in this country.

As you are no doubt aware, Mr Speaker, the FSA has devoted massive resources to the RDR over the last three years, during which time it had taken its eye off the ball so far as the banks were concerned. Ironically, the FSA’s light-touch regulation of the banks, which are, as many Members have said, responsible for the vast bulk of consumer complaints, went on simultaneously with the massive intensification in regulation of financial advisers, who cause hardly any complaints to the Financial Ombudsman Service.

That all came at a time when the mortgage market virtually ceased to exist for financial adviser firms through a combination of tighter lending criteria and positively anti-competitive practices such as dual pricing by lenders. As a result, many financial advisers and mortgage advisers have gone out of business and many more will face the same fate in the next few years.

The sector employs thousands of people, such as my constituent David Barnett who is listening not so far away, and advises millions of others, such as me. Many people will struggle in the years of austerity to come, and those people—our electors—need us to help them to balance their budgets and avert financial disaster when the worst happens. They are looking to us to do that tonight. We must also look towards the financial advisers, many of whom are part of the creation of small and medium-sized economies in rural areas and in some suburban areas, such as my constituency.

The RDR is a long and complex affair, and I shall not repeat the details now. My understanding from my constituents is that it boils down to two main themes—remuneration and qualifications. As it stands, it looks as though the entire remuneration system will be changed to one that will cause confusion, confrontation and a loss of service to the mass market. Qualification requirements are being ramped up and thousands of advisers are under pressure to gain their diplomas before 31 December next year. At the very time when business conditions have never been more difficult, advisers are being forced to spend hundreds of hours earning diploma points when they could be earning a living for their families.

The latest directive from the FSA is a requirement that whenever a life assurance policy is sold financial advisers must illustrate to the client the total premium cost over the entire policy term. The total cost of a life assurance policy is irrelevant—the only costs relevant in the purchase of life cover are that the premiums for the contract recommended are demonstrably fair and competitive for the type and extent of cover being bought when it is bought in a free market and that they consider the potential cost to the client and the client’s family of not having the cover if he or she suffers disabling ill health or death. Requiring an illustration of the total cost over a period of 20 to 25 years simply creates an off-putting and distorted impression to the consumer. Financial advisers are being asked to spell out the total theoretical cost of life cover and thereby to accentuate its negative aspects. A simile for this would be vehicle manufacturers giving prospective purchasers the likely finance, running and maintenance costs of the vehicle they are selling over its projected life. The FSA has gone too far. In fact, it went too far a long time ago, although it should certainly ensure that advisers are competent and honest.

[Richard Graham (Gloucester) (Con)]

Does my hon. Friend agree with the former chief ombudsman that the idea that complaints will go down after the RDR is wishful thinking? Does he agree with the head of HBOS that the main beneficiaries of RDR will be the bank assurers? We are looking at the law of unintended consequences.

[Mr Offord]

I certainly do agree with my hon. Friend and many others who have made the same point. The main beneficiaries will be the big banks, including many of those that got us into the difficult situation that the coalition Government are having to address.

I should like the FSA to keep its nose out of normal commercial transactions and to leave business to businessmen such as the many constituents who have been mentioned tonight. If the FSA should be giving the public any message, it should be, “Protection is valuable and essential, so you should see an IFA and get some.” Instead it gives out the message, “Look how much you’ll spend over the life of a policy,” without addressing the benefits of that policy.

Independent financial advisers would like to be left to get on with their jobs, employ people, pay their taxes and look after their clients. They create wealth, look after our voters and, unlike the massive, over-complicated, expensive and unnecessary changes proposed by the FSA in the RDR, their requests are very small, simple, cost-free and necessary. They are just asking the Government to direct the FSA to revise the outcome of the RDR so that there is no change whatever to the current rules on remuneration and disclosure and to move the deadline for diploma qualification to 1 January 2016. I ask the Minister to ensure the same.