The crisis engulfing financial services trade bodies

Financial services trade bodies are in a state of crisis with members in open revolt as they are chronically unable to agree common policies.

The latest move saw Investment Association chief executive Daniel Godfrey being turfed out by his members for an unpopular style.

The Daily Mail reports Schroders, M&G Investments and Neptune were all unhappy with Godfrey’s attempts to push through reforms.

But the IA is not alone in having a divided membership.

Association of British Insurers members are even in more split in an era of ferocious change in the pensions industry.

In early 2014, Legal & General was shouting from the rooftops about the need for a 0.5% auto-enrolment pensions charge cap putting it at loggerheads with other members.

Most of the ABI were terrified about the hundreds of millions they would lose from even a 0.75% cap and they wanted aggressive lobbying against it.

The ABI could not square the circle. In May 2014 it missed the deadline to respond to the Government’s charge cap consultation.

Eventually it out a bland statement about the proposed cap that pleased no one. In August 2014, L&G quit the trade body.

The ABI troubles did not end there. Members were also split on how the ABI should lobby over Government-run pensions guidance last year, now called Pensions Wise.

Bigger providers wanted to take a role in offering guidance but smaller players, especially those with enhanced annuity offerings, were furious and wanted it to be entirely independent. Resignation threats were made and a coherent position became difficult.

Earlier this month, Aegon became the latest exit, clearly feeling it was no longer getting its money worth on lobbying.

Banking has the same tension between large and small members. The British Bankers’ Association has to manage the interests of upstarts such as Aldermore and long-established members such as HSBC.

The bank levy is a case in point. As HSBC made noises about leaving the UK due to tax and regulatory burdens, the Government altered the structure of the levy so it would fall less heavily on banks with a global presence.

But money was needed to plug the gap and the burden fell on start-ups and building societies who, bluntly, can’t leave the UK. The BBA’s smaller and larger members are at completely different positions so lobbying becomes tricky.

One reason trade bodies become so divided is the urge to expand and attract new members to become more influential and financially stable.

The Association of Independent Financial Advisers made such a move in 2012 when it decided to take on restricted advisers to plug a financial hole and subsequently became APFA.

Some members were not happy and splinter groups such as the, ultimately unsuccessful, IFA Centre and newly found Libertatum were founded to represent independent advisers.

The Association of Mortgage Intermediaries’ also decided to break away from AIFA too as it morphed into APFA.

Like APFA, some trade bodies are still looking to expand. There is the controversial merging of the Institute of Financial Planning and the Chartered Institute of Securities and Investments. They are joining to become an “even more powerful influence”.

There was also discussion this summer about the Building Societies Association and Council of Mortgage Lenders join forces. The ABI and IA also merged their investment affairs division last year too, causing the Investment Managers Association to rebrand as the IA.

But as we have seen, larger organisations have more disparate interests and coherent positions can be elusive, ultimately diluting the lobbying power of everyone involved.

“Common interests are becoming less common,” tweeted Tom McPhail, head of pensions research at Hargreaves Lansdown.

Politicians don’t help either. Ministers want to speak to one head of an organisation representing the entire industry, not 10 smaller heads with a cacophony of different views.

They fail to understand differences within industries and the fact most companies are also competing with each other and looking for advantages. Some ministers just see a monolithic bloc of pensions providers or financial advisers when that is not how they always see each other.

Metro Bank does not feel the same as RBS. St James Place is not the same as Alan Lakey’s Highclere Financial Services. And L&G feels a world away from Partnership/Just Retirement.

Perhaps we are simply living through an unusual era of immense change in financial services with business models under threat and tensions heightened.

Firms have a choice. They can join a large trade body and compromise for a louder voice or split into smaller groups to get a voice that is more authentically your own but ultimately weaker. That is the biggest question facing financial services firms who want to lobby the FCA or Government today.

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