The newly appointed director general of AIFA, David Severn , talks to Angela Faherty about why his dissatisfaction with regulation prompted him to represent the IFA community
It was David Severn's passion for the small business sector and the IFA market that triggered his move from the Financial Services Authority (FSA) to the Association of Independent Financial Advisers (AIFA) early this year.
As its newly appointed director general, his job is to represent the IFA community, bring about change and strive to look after the best interests of his members. A concept many may consider alien to a former regulator.
Severn's challenge is a tough one and he has big boots to fill – his predecessor, Paul Smee, was held in high regard by members. Yet Severn is determined to shake off the regulator guise, and despite a flurry of criticism following his – some would say – shock appointment, he is calmly confident about his potential.
"When AIFA was established in 1999 and the post of director general was outlined, there was no mention whatsoever of the need for the director general to be an IFA. The position was about public speaking, knowledge of the workings of the regulator and government and I was selected on these grounds. I have these skills. I think most people are open minded enough to give me five years, see what I deliver and if I fail, I will be sacked," he says.
But Severn is not a man to rest on his laurels. He is here to perform and he knows what he has to do. Spurred on by his increasing frustration at the growing level of regulation and the lack of success it was achieving, Severn felt he could use his knowledge in a different way.
"I felt that it had got to a stage in regulation where it was getting too bureaucratic. It was not advancing in any way. It is rather depressing that after 15 years, people are still experimenting with different approaches to regulation, but the message has not got through. What firms actually need is stability," he says.
While he supports the more principled, risk-based approach adopted by the FSA, he thinks the problem is delivery. He says that the FSA, being an enormous regulatory body with a vast range of coverage, fails to fully acknowledge the needs of IFAs.
Key concerns
"They are not being ignored," he says, "but on reflection, IFAs are very small fish in a very big pond. That is why I am here – to approach the regulator on issues at hand otherwise IFAs will get overlooked."
In his short time as director general, Severn has travelled to various cities in the UK to meet AIFA members on a face-to-face basis and identify their key concerns. Chief among these, as ever, is the cost of regulation. A matter he feels could contribute to the growing lack of financial protection in the UK at the moment.
"The trouble with regulation compliance costs is that it will lead to IFA firms focusing more attention on high net worth clients because they can justify the costs that occur. Some IFAs I have spoken to have said it costs roughly £300 per client to satisfy basic regulatory requirements. These figures leave IFAs with no choice but to focus on those who can pay. But this is a bad thing as a lot of consumers who do not fall into this bracket need independent advice more than most because they have little to save and need to make the best use of it," he says.
Despite this, Severn remains very optimistic about the IFA market and its future, highlighting the baby boomer generation and the growing need for financial advice as beacons in the dark. Theoretically, he says, the ageing population, with its considerable capital and desire to invest, presents the IFA market with an ideal target for business. Tapping into other areas of the market is not as easy however, and he feels IFAs must do more to attract and grow business.
"IFAs need to do more to promote their independence in order to drive home business. Some do not make enough capital out of the fact that they are independent – holding the attitude that the customer should come to them. IFAs should be more proactive in growing business and seeking new customers, not sitting back and waiting for it to arrive on their doorstep," he says.
Obviously, Severn is also quick to dismiss scare tactics in the market suggesting the imminent demise of the IFA sector as a distribution model. Outlining the indifference of UK consumers to financial matters, Severn is adamant that IFAs are not a dying breed.
"Generally, UK consumers are not interested in doing their own shopping around when it comes to financial matters. There are some, perhaps from the middle classes, who surf the internet and read more about the issue, but the majority are not confident to do anything about it themselves. The suggestion that direct will take over seems to me both implausible and alarmist," he says.
Severn has also levelled criticism at the Association of British Insurers' (ABI) recent proposals to eliminate indemnity commission. Slamming the suggestion as ludicrous and unfair, Severn says the ABI has shown a lack of understanding about the job carried out by IFAs and has little faith the proposals will even crawl past the finishing line.
Stable environment
"It is daft. Why does the ABI think it is acceptable for an IFA to get paid over a certain period of time for work carried out now? There has to be a correlation between the hours carried out and the amount you get paid. My belief is that the proposals will sink without a trace, the whole thing is just a PR job," he says.
Nonetheless, Severn does believe that IFAs need to be more upfront about the service they are offering, particularly in terms of payment. "I do not think IFAs are very good at explaining to people how they are paid for the service they provide. They need to make perfectly clear whether the service is ongoing or not," he says.
It seems Severn has a clear agenda for what the IFA market should look like in five years' time. He wants a more stable regulatory environment and a thriving IFA community and laughs off industry pessimism that regulatory costs and direct competition will force the sector to retreat.
"I had a good job with the regulator and could have coasted through to retirement," he says. "I would not have taken on this role if I thought the IFA market was going to fall flat on its face. In five years' time, I am confident the sector will still be here, be strong and be more professional."
