The Association of Independent Financial Advisers (AIFA) has published its response to the Financial Services Authority’s (FSA) CP121 paper and the Treasury consultation paper on mortgage regulation.
On CP121, AIFA thinks polarisation reform will distort competition, if it results in fewer independent advisers.
It points out that the direct retail sector needs competition from an independent sector, which allows new providers to enter markets without the need to build up a controlled distribution arm. New providers tend to drive market innovation, and if distribution is controlled by a few providers then competitive pressure will fall.
Paul Smee, director general of AIFA, said: ‘We believe the FSA’s proposals would bring competitive distortions into the market if, as we believe, there is substantial contraction in the independent sector following the introduction of the proposed defined payment system (DPS). The DPS needs to be modified and there should be equivalent rules in place for all types of distribution.’
The response notes there is no proposal for a specific form for DPS and, in this case, it would be difficult for clients to compare costs by shopping around.
DPS proposes an independent adviser under the proposed regime would have to negotiate up-front service charges and the collection method ‘ either fees, commission, or both. If there is commission which is more than the fee, then it must be used to benefit the client.
Although mortgage advice is not the core business of most members, AIFA is interested in mortgage regulation as it expects principles adopted by the market’s regulators to be used in the general IFA market and vice versa.
Following the Council of Mortgage Lenders’ line, AIFA said the £5 maximum fee for mortgage transactions that do not complete bears no relationship to the work done, and, if mortgages were brought in line with other regulated products, then the limit would be removed. Disclosure rules, in place for other products, would ensure consumers are aware of the cost of advice.