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&#39FSA is not coercing IFAs&#39

“Polarisation is dead. Long live independent advice!” might well be the rallying cry for some IFAs once they have studied for themselves the FSA&#39s proposals for reforming polarisation.

As companions to the consultation paper, we have published three research reports. They cover the consumer research, the extent of commission bias and the process by which IFAs select products and providers.

The consumer research carried out for the FSA as part of its review of polarisation showed a significant number of consumers aspired to getting independent financial advice. But when it came to how consumers behave, far fewer actually sought out independent advice.

This was not fickleness on the part of the public – they had clear reasons for their choice of adviser. Big brand names were trusted as a source of advice.

And more to the point, commission was seen as a corrosive influence on the availability of truly independent advice.

So IFAs have an image problem because commission is acting as a turn-off for some consumers who might otherwise use their services. More important for the FSA, commission is also a source of potential bias.

Another substantial piece of research conducted as part of the review has looked at the extent of commission bias in the IFA sector and whether any bias is causing detriment to consumers.

This has fortunately not revealed any evidence of pervasive bias but it has revealed problems with IFA advice in some areas. The FSA&#39s proposal that in future the price of calling yourself an independent adviser is that you have to operate on a defined-payment basis is intended to align independence with consumer expectations of what that should mean.

The transition to this new payment basis may be difficult for some firms and particularly those who currently derive the majority of their income from commission.

But there is another proposal in the FSA&#39s package of measures which could ease the process and help sustain a new independent sector. We are proposing that the better than best rule should be scrapped opening the way for investment to be made in independent firms.

And what of those IFA firms that do not wish to move to the new payment basis? Basically, they can continue to operate as they do now with the exception that they will not be able to hold themselves out as independent advisers.

It is nonsense to suggest that the FSA&#39s proposals will “force” present IFAs to become multi-tied or, indeed, to go out of business. The choice is entirely theirs.

If their prime interest remains in providing their clients with a good service there is no reason why they should not continue to do so in the same way they do now. If they instead decide to go multi-tied that is up to them.

From the FSA&#39s perspective a key proposal in CP121 is to increase choice for consumers in the current tied sector. Our research shows that the majority of individuals are getting advice from the tied sector and the tied sector also has a greater proportion of customers in lower income and socioeconomic groups.

Our proposal is to remove the shackles from the tied sector, opening the way for their customers to be given greater choice. We see no reason why consumer choice should be restricted in the tied sector by regulatory fiat.

Of course, against a background where the market is offering a greater choice of options it is important that consumers have clear information about what they are getting – and equally importantly what they are not.

The FSA envisages a two-pronged approach to make the changes clear to consumers.

First, through our own consumer awareness measures we will seek to explain to consumers the advice options open to them and what those options mean.

Second, we are proposing new disclosures to consumers in which firms will have to give information not only about their offering but also how that contrasts with what is available elsewhere in the market.


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