MM: Has the time come for polarisation to end?
MW: Polarisation was the right thing for 1988. At the time, there was no way of distinguishing between who was a broker and who was a tied salesman. Everyone had two business cards and called themselves whatever they wanted. The only way of brin-ging some order into the market was to introduce a strict structure.
The feeling was that all these people who had been misrepresenting themselves would still say 'I can represent all these different companies', so we started with a somewhat Draconian basis.
Fifteen or 16 years later, I think it is entirely appropriate that when the complaint is really that regulation may have gone too far, polarisation should be considerably loosened and then the only issue is how far you go?
MM: Has polarisation served consumers well?
MW: Compared with the chaos of an unregulated marketplace, I am sure it has served the consumer well. Does the consumer realise what kind of advice they have been getting? The bottom line is that the consumer does not actually care. What they are looking for is advice that they can trust.
MM: The starting point for the review is that consumers at the tied end were not being served well. Is that a fair observation?
MW: The main pressure for the ending of polarisation would have come from the banks. They clearly feel limited by not being able to sell other companies' financial products. Given the fact that after 16 years of polarisation, the majority of people still go to a bank rather than an IFA, the majority of people were de facto limited to one range of products and clearly no one provider can offer a good solution right across the board.
MM: What do you think of the relaxation that the FSA has introduced?
MW: If I have got a reservation about the way that the thing has gone, it is that I would have liked to see a situation where anybody who has their own salesforce can sell other products but they have to take full responsibility for the advice and training, which is the product adoption model. There is this middle ground of multi-tying, where an individual goes and registers with the FSA. The practical problem is when the FSA has another 10,000 to 15,000 people come to them and say: “I want to be a multi-tie agent”.
The providers are not responsible for the advice they give, for their training or for their complaints' handling. Then there is a further complication in that an IFA is required to give best advice where someone who chooses to multi-tie can get whatever commission they like. It is a deliberate policy here that in the multi-tie field, people can do whatever they like. If there is going to be problems, they are going to develop around that.
MM: Would the problem have been solved simply by allowing gap-filling?
MW: That was the argument we made to the FSA at the time of the debate.
MM: Does the creation of multi-ties enhance the risk of consumers being missold?
MW: There is always the risk of misselling. I think it is probably going to make the regulator's role more difficult. When there is a limited number of relatively large bodies around, the responsibility for regulation can be effectively passed on to them. The difficulty is when you get down to lots of small firms. The interesting thing from a regulatory point of view will not be the extent to which the networks tie because they can be regulated quite easily but to what extent smaller firms multi-tie.
It is not something that I would lie awake worrying about at night because there is a strong regulatory environment but the FSA has created the situation where they will have a lot more bodies to keep an eye on.
MM: Is the 1 per cent world as bad as the industry thinks?
MW: The problem with the price cap is that it does not pay advisers to give advice on small cases, which makes the mass market effectively disenfranchised. The large banks will find it worthwhile to sell a simple packaged product on a mass basis, with the trade-off being that the regulated climate has to be that much weaker. But for the rest of the market which is advice based and working on normal market principles, they will not sell these simple products.
MM: What about the argument that the type of consumer likely to use banks is not likely to walk in off the street and buy a financial product without advice?
MW: The role of the adviser is to not just give advice on what product to buy but encouragement to do it all. Without someone doing that job, it will not happen. These products are not the solution to encouraging saving. Eventually, if you want to encourage saving among the mass market, you end up with compulsion.
MM: Will the increasing trend towards market consolidation continue?
MW: Yes but there are two elements in the market – the product provider and the product distributor. Among providers, consolidation is being driven by regulatory capital and efficiency as well. At the distribution end, we have seen very big consolidation among networks and so on. The question is, will those consolidations remain separate or will the big product providers find that they have to directly or indirectly control their distribution. I think they will come under very strong pressure to control their distribution.