Aifa's new policy director talks to Paul Robertson about issues affecting IFAs - from challenges of the RDR, to TCF deadlines and the ongoing PPI investigation - plus Kylie Minogue
Andrew Strange looks to be custom built for the position he took up in July. No sensible person would want a Gordon Ramsey-type character as policy director steering the Association of IFAs (Aifa) and the Association of Mortgage Advisers (AMI) through the multiple regulatory issues facing the financial advice sector. They would, rightly, opt for a measured, thoughtful and cerebral type. Andrew Strange to a tee.
Tasked with formulating and communicating the associations' response to the myriad UK and pan-European issues that will, or could, impact on UK markets, Strange is an experienced strategic thinker, having been promoted from policy analyst this summer, and an exceptionally clear speaker. He has, however, had to hit the ground running: "At the moment I am still finding my feet and we are incredibly busy. There is a lot happening right now."
While present, and future market conditions have been well documented, Aifa members can take some comfort from Strange: "On the AMI side, for a mortgage broker out there selling mortgage protection, this is a challenging time. AMI is running some business diversification workshops through September and October to help mortgage brokers to consider their business and to find areas they could expand into.
"However, I would have to say that, anecdotally, on the IFA side we see that firms are still doing quite well. There is an underlying demand out there for good quality advice on investments, pensions and protection. But there is a degree of cross-over between the camps as 58% of IFAs sell mortgages."
First off the blocks this autumn in terms of policy will be the FSA's feedback to the Retail distribution review (RDR). While waiting for the final feedback from the FSA in November, Aifa is still talking to the FSA and its members.
Broadly speaking, Strange agrees there should be a distinction between sales and advice. "The way the FSA has developed its thinking is remarkable. This is an exercise in increasing the trust of the public. When they become more confident, more will re-engage and produce a positive outcome," he says.
Yet the RDR is set to throw up a few problems for advisers and the regimes they advise under, especially when selling both protection and a mortgage. Strange explains: "We have not seen the details on this but I would guess that if any regulatory changes were required they would be to the conduct of business sourcebook (COBS) and the mortgage conduct of business sourcebook (MCOBS) would be unchanged.
"So a mortgage broker may be unaffected but an IFA selling mortgages may find themselves wearing a different hat to do their mortgage business. As for the mortgage broker, insurance can be sold under the COBS or the insurance conduct of business sourcebook (ICOBS). There is not necessarily bleed-through into ICOB rules."
Not set in concrete
For those still confused, take heart: "It really is difficult to answer this as we are at a very open stage and there is no draft wording or similar at the moment."
The other great force for market change on the macro level is, of course, Europe. Aifa inputs heavily into Europe, with Chris Cummings, the director general heading the association's mission. There is now a European advisory board within Aifa which met for the first time in July and is tasked with tackling issues as they arise. Europe clearly fascinates Strange.
"The agenda in Europe is almost as busy as in the UK. We have the Markets in Financial Instruments Directive (MiFID) which still has not been universally adopted and we have pressure for an Insurance Mediation Directive (IMD) review, even though some countries have already adopted it."
He adds: "In addition there is a raft of little things that you wouldn't suspect would have an impact ... For instance I saw a proposal for insurance guarantee schemes - compensation schemes for out-of-business insurers. Across Europe there are a variety of schemes, some for brokers, some for the public, some for investments only and so on ... This scheme would unify across Europe. Even though this is something we already have, it could involve costs and changes to the UK. So it is important the UK experience of having a compensation scheme is input."
So, in the big scheme of things, times are busy but it is the everyday challenges affecting the adviser that Aifa members expect guidance on. The two main issues facing financial intermediaries across the board are Treating Customers Fairly (TCF) which has a looming December deadline, and continuing investigations into payment protection insurance (PPI).
Aifa sees the smaller firms as having the greatest difficulty in assessing TCF strategies, but also that they have an inherent advantage when they decide the path to take.
"If you look at what the FSA has published recently," says Strange, "which was primarily on relationship-managed firms - and the majority of our members aren't - the feedback we see is that small firms often don't understand what it is the FSA wants them to do. The FSA could sit with them and say 'we like this but not so sure about this.' Because they are small these firms can react quickly and will have no problem adopting the regime - it is just a matter of getting that dialogue. The FSA's small firms division will help here as it hopefully gets out and meets small firms rather than coming down on them heavily."
The continuing saga of the industry's handling of PPI sales is more complex. Strange is still battling to have mortgage payment protection insurance (MPPI) kept separate, at least in the minds of the investigators.
Against Aifa's lobbying, £110m of the £4bn figure quoted as excess insurance industry PPI profits comes from MPPI. However MPPI has been given an overall reasonable bill of health. Strange says: "We and the ABI have said all along that it is a reasonable product, making sense for some people as part of their holistic protection arrangements and the FSA should separate it from PPI. However they didn't exclude it and we have put in a pretty robust response asking that any remedies for the PPI market shouldn't touch MPPI."
No man's land
For the rest of PPI, the majority, being on unsecured loans, falls outside the remit of both Aifa and AMI. However Strange is keeping a close eye on the situation. "We are conscious of avoiding tarnishing all PPI products with the same brush and inadvertently catching MPPI."
But what of protection? Amazingly Aifa does not have any major problems looming specifically on protection but there are still changes afoot. Strange notes that tele-underwriting is throwing up positive issues. "There is an issue over the liability for disclosure, if the insurer has asked the questions of the client directly. The Law Commission is also currently looking at changes to insurance contract law. The question is if the adviser is an agent of the client does he become an agent of the insurer if he fills in the declarations? So tele-underwriting is a positive if it clarifies to the client just who is taking the medical details. We don't see any problems with tele-underwriting."
On more general terms, one of the complaints consumer body Which? appeared to make recently in its report on mortgage advisers was that mortgage advisers were keen to sell protection cover, and that they were using Kylie Minogue as an example. Strange is keen to comment on this: "In fact, if advisers are giving holistic advise they should be keen to sell protection cover and Kylie Minogue is a good example to use of somebody who you would not expect to get cancer.
"Particularly in this economic climate, advisers need to ensure that they are discussing full protection arrangements with their clients."
Discussing policy with Strange, the thing that is most striking is that there is always one more thing on the horizon that either needs the sector's input or is a threat to be headed off. When asked to sum up the future for the advised sales sector, he says: "The RDR is clearly a significant challenge for the industry as a whole and will make a big difference to it in the future. The credit crunch is going to remain a problem for mortgage brokers. In addition, the regulatory regime is still pretty busy.
"There has been a lot of pressure on commission disclosure, particularly in Europe, and that is still bubbling away in the background. The VAT directive will, in theory, not have an impact as financial services have an exemption but you never know and still requires input from trade bodies to ensure it stays that way.
"There are even things such as FSA CPO723, which is MiFID systems and controls rules for non-MiFID firms. This will have an effect on mortgage and general insurance firms and IFAs who have not opted to passport into MiFID. They will need to look into conflict of interest policies and outsourcing requirements. We are due feedback from the FSA on that at the end of September or early October. So there is still plenty going on in the background."
"Our job is a watching brief. One of our terms is Eagles with microscopes. We keep a broad view and give input where we can, says Strange. It seems Aifa has its work cut out.
CV: Andrew Strange
2008 to date: Policy director, Aifa
2007 - 2008: Policy analyst, Aifa
2005 - 2007: IFA, Cavendish Young
2003 - 2005: Set up FUNK Financial mortgage brokerage
2001 - 2003: IFA, Felix Financial.
