Select Committee on Constitution Minutes of Evidence


Examination of Witnesses (736-739)

WEDNESDAY 25 JUNE 2003

MR P SMEE, RT HON J GUMMER MP AND MR R SANDERS, ASSOCIATION OF INDEPENDENT FINANCIAL ADVISERS

Chairman

  736. Gentlemen, thank you very much indeed for being with us this afternoon. Before we get under way could I invite you to identify yourselves for the record?

  (Mr Gummer) I am John Gummer. I am the Chairman of AIFA.
  (Mr Smee) I am Paul Smee, Director General.
  (Mr Sanders) I am Roger Sanders, Deputy Chairman of AIFA.

  737. Thank you very much. We are very grateful for the paper you put in as well as for being here this afternoon. Are there any comments you would like to make by way of introduction before we put any questions to you?
  (Mr Gummer) I should very much like just to explain that all our members are of course regulated by the Financial Services Authority (FSA) and we constitute by far the largest block of companies which are regulated in this way. They are, for the most part, small businesses; we have one-man bands, we have much larger ones, but the majority are small. We have a number of large firms and we do have to face the fact that there is an almost inevitable rule of regulation which is that those who are most able to help the regulator by informing them, tend to be the large firms where they have time to do that. Large firms in all areas, not just this one but in all areas, compete on every ground except the ground of keeping out new entrants. There is a desire always to ensure that you raise the barriers. This can be presented in the most elegant way, but there is certainly an element of that, which we have to accept. We would just like to say that we very much understand the need for regulation; we are formed in a sense in order to respond to that need. We try to regulate ourselves as well as we can and we believe that the regulator needs to be accountable in some way to those whom it regulates, although that does not mean just to the regulated community, but also to consumers, to the public interest, and to Parliament itself. We would hope that the regulated firms can feel that there are means by which they can ensure that their concerns are properly considered by the FSA and I think Parliament foresaw that in making provision for consultation. The difficulty we face is that small firms find it hard to be listened to even though the weight of regulation falls very heavily upon them and even upon us who represent them. We cost more, because we have to spread ourselves more and that is particularly true now that the European Union, of which I am particularly in favour, is taking a greater interest in this. To be a European player when you represent a whole collection of small firms is both an expensive thing and a time-consuming one. The culture is to favour the larger better-resourced firm rather than the smaller and one cannot avoid that. I suppose that there ought to be a different culture, one which is sympathetic to the smaller firm and that would be marked by improvements in the areas of setting priorities, of clarity and of collaboration. It is very hard when the FSA thinks about each bit of consultation separately. What happens to us of course is that each one of them adds up onto the next one, so that we are answering a whole series of very often very necessary consultations. In each case they are proportionate, but if you add them together, they are disproportionate in the sense both of the weight that leans on us as the representative body and also our members. It really is very often made worse by the length and the impenetrability of the documents. I come to this fresh. I was chosen as a wholly independent person, in other words I had no background which favoured any aspect of this business. That also meant that my detailed knowledge of it is one which, rather like a minister, I have had to learn. I cannot tell you how difficult it is to read some of the documents which are supposed to be read by people who have neither the time nor perhaps the experience of reading complicated documents that I have as a former minister. Being a former Minister of Agriculture, of course, and understanding the Common Agricultural Policy and being a medievalist by training, and therefore understanding a little bit about the medieval school men, I think I am quite good at impenetrable documents. Some of these certainly line up with CAP-derived material and there is an importance of trying to make them easier for people to understand. What we need is ruthless prioritisation and the use of simple English to explain difficult projects. For example, we all know what depolarisation means, but I cannot believe that the general public knows what it means.

Lord Acton

  738. What does it mean?

  (Mr Gummer) If we start on "depolarisation" . . . I am pleased you reacted like that because it does show that very many of these discussions take place in an entirely different world from that which our people have to deal with, people on the high street. They are dealing with very ordinary people who come to them for pretty simple issues and find this increasingly difficult. There is a case also for perhaps some amendment to the Act to enable some minor changes to be made to regulation without the full amount of statutory consultation. There is a case for simplifying in that way. It is a question of prioritisation, of clear communication. The third issue is that there should be more space for industry initiatives designed to raise standards. We exist because of the manifest need which was there to raise the standards of our members. If everything is done by regulation, if every choice and decision is covered by regulation and by the activities of the ombudsman without enough elbow room, what happens is that innovation is stifled. In a fast moving area where you need people to bring in products which suit people's needs, they need to feel that they can to a degree be the arbiters of their own future; and the better we get at it, the lighter the hand perhaps of regulation from outside could be. In other words, there ought to be a way of making us more and more professional and because we were more and more professional, enabling us perhaps to be less heavily regulated than at the moment. I hope that gives a positive spin.

Chairman

  739. That is most helpful and the points you made there as well as in your paper are perhaps things we should like to pick up on. What clearly comes across in your paper is that you are saying the present situation is the real but it is not the ideal. What we want to explore are some of the points you make for reaching a situation you regard as ideal or as close to as possible for your members. Before we get on to looking at the accountability of the regulator and picking up the points you make about that, you touched upon the nature of your membership and in your paper you mention that you have nearly 18,000 independent financial advisers. How are you accountable to those and what is the method by which you know what the interests and views are in order to represent them?

  (Mr Gummer) We have a council which is elected and it is elected in such a way as to defend the interests of various parts of the body, so that those who are, for example, large groupings are elected under a different structure; we differentiate between those who have more than ten and those who have fewer than ten regulated individuals. We try therefore to make sure that there is a balance. We go to great trouble to keep in touch with our members and indeed we would not exist if we did not do that, because they pay for the operation. They have an outside chairman who is elected by the council at the annual general meeting; that was until recently Lord Hunt of Wirral and has now become me. Our job is to hold the line because there are real differences in the interests of the large and the small, there are real differences in the interests of the practitioner in rural areas and those who are in the city centres where there is a good deal of footfall,. One has to deal with those issues. IFAs also feel that they need to be represented to the increasing number of bodies with whom we have to have a relationship.


 
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