Meeting Paul Smee, director general of the Association of Independent Financial Advisers (AIFA), at 9:30am, the initial worry is that his previous job, with the Independent Television Commission (ITC), will prevent him from saying anything interesting for at least another 11 and a half hours. Fortunately Smee has got over watershed constraints, and he is both energetic and engaging about the future of AIFA, his role within it, and the challenges ahead for the newly established Association of Mortgage Intermediaries (AMI).
On top of his position with AIFA and his previous work at the ITC, Smee has also worked for the Association of British Insurers (ABI), and the Department of Trade and Industry, so he is no stranger to bureaucracy, and the frustrations it can create.
When you run a trade body or have been involved in public policy, as Smee has been for the last 20 years, bureaucratic red tape is something you accept as part of the process. He comments: ‘Is it frustrating? Yes. Do you bang your head against the wall? Yes. But you just work round it.’
Smee took the position at AIFA for the challenges it presented. He says: ‘I started in September 1999 so I am just coming up to my fourth year. I was looking for a move from my previous employer with the television regulator ITC, and I saw the advert and thought this was one of the great public affairs challenges, to bring together a disparate sector and to try and represent it effectively.’
One area of the financial advice sector that has been under AIFA’s spotlight in recent months is the mortgage market. A lot of work has gone into creating the AMI, and it was officially launched last month. Although operationally the new body will be a division of AIFA, Smee is keen to point out it will have its own independent voice, and the AMI board will have responsibility for the policies followed. There are clearly going to be differences of opinion, but Smee is confident they will be ironed out and the two bodies will not prove mutually destructive. He comments: ‘I have responsibility as the head of AIFA for ensuring there is no conflict between the AIFA council and the AMI board. There will be observers both ways, and if there is going to be a collision then we have to sort it out, and it is my job to do that.’
The next few months are going to be crucial for AMI, as it tries to establish itself as a body truly supported by the mortgage industry it purports to represent. Smee says: ‘We have had a lot of interest and we are writing to people to get them to sign up. Of course, we have support from a lot of big players like mortgageforce, Charcol, The Marketplace, Norwich Union, Mortgage Intelligence and Legal & General, and that is really good. I think there is a view in the market, that mortgage brokers need to start making their voice heard as the Financial Services Authority (FSA) is starting to push all these huge consultation papers in their direction. We have got a system, and we have been there since CP 20 and we are now on CP 180. For the mortgage market this is their third or forth CP and we have to tell them how they can negotiate and get change, because we have got a track record of doing that.’ He adds: ‘I think a trade body has to meld the public policy way of looking at issues with practical hands on knowledge of what happens at the coal face.’
Previous jobs have given Smee first hand experience of the impact that regulation will have on the mortgage market, and how many problems it will create if it is not prepared for sensibly and practically. Smee feels there is still a lot of groundwork to be done by mortgage brokers and says that general knowledge about the regulatory juggernaut is not as good as it could be. He comments: ‘Everything I see tells me that it [regulatory knowledge] is not as good as it needs to be and that is why you need AIFA. If I was a mortgage broker running a business I would not have the time, energy or expertise to go through these documents, but I would expect somebody to do it for me and that is what we intend to do.
‘What the broker needs is a bit of paper, not 175 pages long, which says here are the three things that affect you, that you had better get sorted out, or you will get hit by a train called the FSA and your business will be in serious trouble.’ He recalls a good example of this from 1988: ‘IFAs had to get their applications in by a certain date, and a lot of people turned up at the head office of the regulator on the deadline day asking for the application form expecting a piece of paper on which to fill in their address. But it was not. It asked where is your business plan? Where are your accounts? And all this sort of information. Now, we cannot have this for mortgage advisers and we must get them ready. We do not want a last-minute crisis.’
Effective communication continues to be a problem and Smee says: ‘We will write in their [intermediaries’] language and this is one of the problems with the FSA. It writes for lawyers, policy makers and regulators. The skill of a trade association is to distil that into a form that is accurate and that the mortgage broker can understand and take action on.’
Smee is keen that regulation is not seen as ‘Big Brother’ trying to find more devious and onerous ways of catching out brokers, and says the FSA must be careful not to let this impression take hold. He explains: ‘There is a great problem in the community that people feel they are not just being asked to advise, but that they will be retrospectively checked up on to see what they did not advise. So you get a situation where you cannot ask a simple question without asking about 50 other questions to make sure you cannot somehow be held liable for not having asked a question.’ Smee says AIFA’s role and worth is in pointing out issues like this where practicalities and theories do not match up and then working with the regulator to iron out the creases in the proposals.
Generally Smee is pleased with the work AIFA has done in the last four years. He says: ‘I think we have achieved quite a lot. I think we have a very high credibility with the regulator and the public policy bodies ‘ the FSA and Government. We are taken seriously and have been instrumental in changing certain issues of policy, sometimes very up front and sometimes behind the scenes.’
One area in which Smee believes AIFA has been instrumental and highly visible in its impact, is the debate over depolarisation and the menu system, which it came up with and which was adopted by the FSA. Smee adds: ‘There are a couple of other areas where you can spot our influence ‘ getting the FSA to address with some seriousness the issue of professional indemnity (PI) insurance for example.’
PI insurance worries have not arrived out of the blue, and problems with capacity, increased premiums and excesses, and tightening policy wordings have been bubbling up to the surface over recent years.
Smee has been trying to raise the profile of this issue for some time and says: ‘I have been asking for two years if there is capacity in the market to provide cover at a reasonable price to all these advisers. The European Commission has seen PI as a way of regulating this environment and it has not examined capacity. I think we are just about to be taken seriously.’
The problem, according to Smee, is that the FSA has too much on its plate to provide a sufficiently focused approach to the major problems it faces. Smee says: ‘The FSA has tried to keep too many balls up in the air at the same time and I hope there will be a much greater focus on core issues. I think as we have seen with PI, that when it is focused on the issue and actually understands how important it is, it has produced some sensible results. The problem is that there is so much going on it is putting too much strain on the industry to respond to its initiatives and then quality suffers. The FSA has to hone down to a very tight set of priorities.’
Asked if he had had a busy week, Smee said every week was busy and it is unlikely this will change in the near future. However, the need for independent advice is not going away according to Smee. He says decision trees and customer information can only do so much, and individuals want, and need, to have someone to help them in their financial planning. However he says IFAs must not be shy of promoting their worth. He says: ‘I think advisers have sometimes been too reticent in saying how much value they give to the client, but I think we are seeing that changing. The IFA is not yet seen as a professional and it would be nice if one day he was.’ Smee is on the case to make it happen sooner rather than later.