13th April 2011

Exclusive: Interview with Stephen Gay.

As you will know, following our recent “IFAs’s done up like a kipper” article Stephen Gay, Director General AIFA, kindly agreed last month to do an exclusive written with Panacea.com, questions being sent in by PanceaIFA members for his consideration.

This has taken a little while to complete but I think that the wait has been worth it.

Here in the first of the series are Stephen’s thoughts:

IFA Representation

You claim to represent the views of your members. How many members of AIFA are the result of block Network membership rather than individual membership?

Who Funds AIFA and in what proportions- Networks, DA IFAs, Sponsors, Providers, Lenders, ABI, Commercial activity?

AIFA’s policy is agreed by its Council, which consists of twelve people who are elected by the membership to be directors of the company. The elective constituencies are designed so that firms of all sizes are represented – so for example four Council members are network or service provider leaders, and four are small IFAs. Each voice carries the same weight, and meetings are independently chaired by Lord Deben. One of our Deputy Chairmen runs a network, and the other is a small IFA. AIFA’s governance structure is therefore well positioned to allow it represent its members’ interests appropriately. 

It is worth noting on the point about block memberships that each firm is of course able to join AIFA separately and to participate on that basis – and some choose to do so.

As for funding, the bulk of AIFA’s revenue comes from member firms in proportion to their size, although we do receive significant support from product providers and fund managers who join as associate members, and are not party to the process of policy formation and lobbying. A small proportion of our revenue comes from commercial activities such as our annual dinner. We get no funding from the ABI or any other body.

 It is true that some members exert a lot more influence in AIFA than others but it has nothing to do with finance. The most influential members are the ones who respond to our calls for input to consultations, provide insights from the experience on the ground, and engage in constructive and open-minded dialogue on topical issues and policies in formation. As in all things, the more they contribute, the more they tend to get out of their membership.

When the overwhelming majority of advisers receive their remuneration by commission why has the AIFA council actively supported the commission ban?

This question implies that AIFA’s role should simply be to defend existing practices, which would of course mean resisting change even where it is merited. It is AIFA’s position that the interests of its membership are not best served by arguing to retain commission as a means of payment for professional services.

The acid test on this issue is whether you have a clear conversation with your client about what service you will be providing, and what the client will be paying for it. This is the sort of clarity everyone should expect when dealing with a professional in any occupation. Most IFAs tell me they already do this – in which case they should have no issue with Adviser Charging, because that is really all it is about.  Conversely clients must not believe that the advice service will be paid for by the product provider out of a magic pot.

There is still some confusion about how Adviser Charging will work in practice. Some still wrongly believe for example, that clients will have to pay for advice by a separate cheque up front, or that every client must pay for advice, or that clients can’t be cross-subsidised. AIFA staff are, of course, able to help members on such points if they are uncertain.

I am not suggesting that explicit charging is without challenges. It will mean that clients will be more likely to question the value of the service they are receiving. Good financial advice has the power to change people’s lives and is worth paying for – but if some clients may not be convinced on this point, the solution can’t be to retain a less transparent charging mechanism. 

I am a long-standing member of AIFA who used to attend local meetings organised by a local Director of AIFA, which at least gave a forum for local views in the West Midlands. These no longer take place as far as I am aware although Dinners have been organised and sponsored by various Product providers and Fund Management Groups. Who represents us locally and how have our views been canvassed on RDR?

We still run dinners and members are able either able to contact AIFA directly through our mailbox (info@aifa.net) for more information or if they need opinion or clarification on regulatory developments.

How many of the AIFA Council, actively employed in the business, run firms that are predominantly or totally fee based and how many of the Council are in favour of the fee approach?

Some members of Council run major businesses, whilst others are actively engaged in providing advice to clients. Most run a mixed remuneration model. Even if we were to take just those Council members who are actively engaged in advice, the aggregate view would not be opposed to Adviser Charging. Weshould remember when talking of the ‘fee approach’ that clients have always paid for the services they receive whatever term may be used to describe it.

Transparency

Why does the Council wish to keep their discussions and those of the Working Groups confidential from members? Surely the workings of AIFA should be fully transparent to its membership?

Every organisation needs to be able to have discussions in which participants feel they can air their opinions freely, but there does need to be appropriate accountability. The output of our RDR Working Group is represented in AIFA’s Treasury Select Committee (TSC) submission. That document has now been placed in the public domain on the authority of the TSC, but it would have been a breach of their protocol for us to have published it in advance and would have invited censure by the TSC. Some of you may know that the first working draft of that document was leaked at a very early stage of discussion; it was posted online within a day, and found its way to the TSC shortly afterwards. This illustrates why organisations need to maintain confidentiality. 

Individual members are, of course, perfectly entitled to respond to public consultations in their own right.

The TSC believe that Banks and Providers say one thing in public and another in private about the RDR, in your role as Director General of AIFA is this your experience too?

It goes without saying that responsible organisations will think carefully about what they say in public, but will be more candid privately. In my experience product providers and banks do not change their positions significantly in public, but they do adjust their tone and emphasis.

TSC Submission

Why have AIFA never done a survey of their members views on the RDR. With technology enabling views to canvassed quickly and at very low cost, is not the only democratic way to email survey all AIFA Members and ask their views?

AIFA has done a survey of its members’ views. We have research which is current and has been conducted by a respected independent organisation on a statistically relevant sample of AIFA members. That research is consistent with the policy position we have taken. There are differences in opinion among the advice profession but the vast majority are adapting to the changing regulatory landscape and preparing for the new rules. Our aim has been to represent the diversity of views in our membership as well as possible in a compromise policy position.

 It sounds very simple to ask members their views on our website or by e-mail, and there was of course the opportunity for members to express their opinions freely in our Strategic Review survey in January. But there are very good reasons why we haven’t done an RDR referendum:

• Our association represents the interests of its members through a defined democratic process. We are dealing with a wide range of policy issues at any point in time, which don’t lend themselves to simple decisions by plebiscite
• The response to online polls is generally very low, and respondents tend only to be those with particularly strong feelings. To achieve a properly representative result requires an extensive process of support and communication
• There might be an argument for such an exercise if the issue was a live regulatory consultation and membership opinion appeared to be in the balance; but this isn’t the case with RDR. 

The TSC suggested that AIFA may have been intimidated by the FSA and asked if AIFA wanted to give evidence in private, did this happen?

The TSC was frustrated that they hear assertive comments in private, but witnesses are often reluctant to repeat them in public. AIFA is mindful to maintain constructive and professional relationships with policymakers, but it is the way that comments may land with our membership and in the press that is the more immediate consideration when speaking in a public environment.  I met with a number of members of the TSC privately and discussed AIFA’s position on the RDR and its regulatory and political context; some elements of those discussions were present in the oral hearing that followed in March.

Solicitors and accountants do not effect and arrange product sales. If professional fee based status is the RDR aim for IFAs, should post RDR fee based advisers be banned from arranging product transactions, leaving this to an independent third party?

In my view, the central consideration is to avoid the potential for a conflict of interests. I see no issue with a professional charging for services which include the arrangement of products. However, if the proposition to the customer is an impartial advice service, but the business model depends upon selling a product, there is a potential conflict of interests that needs to be addressed.

Part two of this exclusive interview will be published next week covering the subject of Grandfathering, Post RDR and questions about the challenges he faces and what he would most like to achieve as DG of AIFA.

FSA/FCA, Adviser Letter of the Week, RDR