Journalist, The Heath Report assured
IFAs: Support trade associations or jeopordise independence
The last month has been one of travel. Firstly a symposium to address in Toronto and then it was Brussels and the FECIF conference.
European IFA representation may change in detail from one country to another, but it is basically the same battle everywhere. The battle is between small independent advisers attempting to increase and protect their client’s wealth and big battalions who wish to move the independents out the way to acquire as much of influence over that wealth as possible.
For much of Europe; banks are the prime area for advice and use lobbying tactics to attempt to minimise the influence of IFAs. Their most powerful weapon is Capital Adequacy which they use to create a sizeable barrier to entry for smaller players. Sweden experienced this in the 1990s. A number of new IFA businesses were formed and soon captured over 30% of the Swedish advice market due to the combination of good advice and product knowledge. Suddenly the Swedish government was under strong lobbying pressure from their banks to increase Capital Adequacy to ward off this new competition. Sadly this was partially successful.
In the rest of Europe, with the exception of the UK, Netherlands and Ireland, all the other countries drive their financial advice generally through providers, mostly banks and sometimes insurance companies. Value, choice and advice are generally poor but if you know no better you buy from the only source available.
So the problem for those who want an EU-wide market for everything is that there are two diametrically opposite distribution methods in play at the same time.
If consumer benefit was truly the marker then the EU would be encouraging the UK distribution model. That is certainly the opinion of the European consumer organisations but the power brokers have other ideas.
So in terms of an EU wide market, the UK, Netherlands and Ireland are in the way of creating a single solution for financial advice. Since the financial collapse, Ireland has become too small for the Commission to worry about, but as I discovered in Brussels, the Netherlands IFA community has been on the receiving end of both RDR and a number of other tactics designed to demote its market influence.
We know the effects of RDR in the UK which many have seen as the regulator demonstrating an eccentric local whim. I disagree. I think there has been an attempt to create an EU generic advice market and the FSA/FCA has realised that it either leads the process or gets left behind.
The current EU directive model is fearfully slow and the UK regulator realises that it can be the de-facto lead regulator in Europe if it moves faster than the Commission – hardly difficult - and it brings solutions which have resonance in other non European distributions. I believe that this was their motivation not to delay the introduction of RDR as the Treasury Select Committee had suggested.
RDR in the UK is basically a version of the 1980s French market where the masses are captured by the big battalions and only the wealthy are given a fee based only alternative. This was declared in conflict with the Treaty of Rome but still lasted for many years.
The question facing the European Trade Associations is the same that faces the UK. Should Independent Advice only be the privilege of the rich or should it be available to the masses? My view is that it should be spread as far as possible. There are very few European banks and certainly none in the UK who have demonstrated enough good faith to their customers to be let loose on the European masses.
The European Trade Associations have the skills to promote the IFA cause and now have the coordination to do it together.
IFAs, wherever they are based, have to realise hat unless they fund and support their trade association en masse they will be exposed to the perpetual whim of the providers in search of more market, governments in search of someone to blame, and regulators in search of a soft target.
Journalist, The Heath Report assured