New AIFA director general, Chris Cummings , talks to Peter Madigan about the issues facing IFAs, the role of the ombudsman and the upheavals depolarisation are causing
The circumstances surrounding Chris Cummings' ascendancy to director-general of the Association of Independent Financial Advisers (AIFA) were hardly ideal. Drafted in to replace David Severn who stood down for health reasons after just three months in the job, Cummings has taken the reigns of an organisation undergoing an identity crisis.
Depolarisation has changed the status of what constitutes an independent financial adviser (IFA) creating headaches for AIFA. Intermediaries who were considered IFAs under the old regime have now been reclassified as either whole of market advisers, multi-ties or so-called hybrid firms - companies which offer independent advice but also have a multi-tied division. This change has left AIFA in a tricky position.
"This is an issue we did not go looking for. Depolarisation meant the FSA has changed the rules of the game and we need to move on," admits Cummings. "We have been left with a simple problem. There is a new meaning for the word 'independent' and we have members whose status has been changed. Do we now expel these firms from membership? We were happy to have them yesterday, so what do we do?"
If there is one person capable of taking the task in hand and resolving the issue, it is Cummings. He has built a career on streamlining inefficient firms and launching new products and organisations. While working in the banking sector he oversaw Sun Bank's growth from a £100m to a £1bn a year lender. More recently, in the two years since the launch of the Association of Mortgage Intermediaries (AMI), Cummings has attracted 17,000 brokers to the organisation. Around 70% of general IFAs are members of AIFA and while many would assume that such a figure is an achievement in itself, Cummings refuses to rest on his laurels. "We do not have 99% of the market as members yet, so there is more work to be done."
Restoring confidence
Cummings is keen to show AIFA members that he is listening to their needs and is in no doubt as to the biggest issue advisers are currently facing. "I have been travelling around the country meeting our members and the clearest message I am getting is about the role of the Ombudsman. We have seen an ombudsman service created with the best intentions, but it has been hit by an ever growing rate of complaints and it has become much bigger than anybody ever intended," says Cummings.
"This has given rise to concerns over the subjectivity of decision making and worries about consistency. If a dozen identical cases go to the ombudsman can you be sure they will be assessed in the same manner and that they will get the same decision going through? From what we are hearing from members that is not necessarily the case," he claims.
Recognising that a problem exists is one thing, but Cummings admits that a trade body cannot legislate for the advice individual clients receive. "We produced fact sheets some time back on non-disclosure and what members should go through with their clients to ensure that a claim is not rejected for non-disclosure, but there is not really a great deal we can do ourselves."
Where AIFA proved most instrumental in recent years was in the run-up to FSA regulation, providing its members with literature and advice about compliance. Although that hurdle has been safely negotiated, Cummings points out that there is plenty more for the association to do in its hand-holding capacity, particularly ahead of the European Union's Markets in Financial Services Directive (MIFID).
"We have to look at the role we play in Europe. 70% of regulation emanates from Brussels, so as an organisation we have a choice to make. We can either continue to play a rearguard action at the Treasury and the FSA, or we can start being more assertive and make a bigger noise in Europe," he says.
Cummings' background working on behalf of mortgage advisers may lead some members to believe that he will have a natural leaning toward the needs of mortgage intermediaries. Indeed, he is retaining his role as director of AMI, but Cummings dismisses suggestions of such a bias, citing his wide experience throughout financial services as testament to his knowledge of all financial markets, including protection.
Market knowledge
"Along with a couple of other people at PPP, we introduced critical illness and income protection, and I was also part of the team that introduced long term care insurance into the UK. I am particularly proud to have taken PPP from a small player to the market leader in pre-funded long-term care," he says.
For the immediate future, Cummings will be kept busy administering the consultation on AIFA membership in what may turn out to be the most crucial months in AIFA's six-year history. While he has certainly been thrown in at the deep end, Cummings appears remarkably blase about a process that has the potential to change the association unrecognisably.
The first part of the consultation will aim to gain a clearer picture of the intermediary market. Preliminary surveys of the effects of regulation have proved wildly inaccurate and AIFA is now seeking to find out just how the land lies for itself.
"The initial research said 70% of IFA firms would become wholly multi-tied. The most recent says that 40% of IFA firms may offer a multi-tied option. Despite this, we do not know of one IFA firm to date that has gone entirely multi-tied," says Cummings.
Repositioning AIFA
The consultation should finally provide a definitive picture of the post-depolarisation marketplace, something that not even the FSA itself has managed to obtain.
Ultimately the decision on whether to allow multi-tied firms and hybrid firms to remain in the association will lie with members, but Cummings warns that carving off a substantial portion of the membership could lead to membership fees rising by up to 30%.
"We have large and small firms in our membership and if all the large networks decide to offer a multi-tied division, we have to ask the question: if 80% of their appointed representatives remain independent, does the fact that they have a multi-tied arm mean that that whole raft should be taken out of membership?" asks Cummings.
"We are here for companies that put the needs of their clients first. They are not contractually obliged to sell any firm's products. This is why I want our members to decide who we are here for because essentially this is their association."
The coming months will be a challenging period for both AIFA and for Cummings. When the consultation results are revealed at the AIFA council meeting on 15 September, it may result in business continuing as usual, or may herald the most dramatic upheaval the association has ever seen. Either way, Cummings is sure he will have his hands full.
"We would love for things to stand still and to have a period where we could look forward and know what is to come from the Treasury, the Government and Europe. But then the wheels never stop moving."
CV
2005: Director-general, Association of Independent Financial Advisers (AIFA) and director, Association of Mortgage Intermediaries (AMI)
2004: Director, AMI
2003-2005: Deputy director general, AIFA
1998-2003: Marketing director, Sun Bank plc
1996-1998: Management consultant, PriceWaterhouseCooper.
