Last week, the FSA published, Reforming Polarisation: First Steps, which sets out for comment some proposed changes to the polarisation regime.
There are no surprises in the changes put forward bec ause they were described last November when it was ann ounced in the pre-Budget report that the Treasury had accepted the FSA's advice on the way ahead on polarisation. Briefly, the changes involve:
l Permitting product providers to “adopt” the stakeholder pension or Cat-standard Isa of another provider and have those products sold by its direct salesforce or appointed representatives.
l Removing from the polarisation regime direct-offer financial promotions.
Why, some will ask, are the regulators interfering with polarisation now? I will come to the answer in a moment but, first, I would like to make clear a number of things.
First, this is not part of any secret agenda to do away with independent advice. The FSA recognises the value it can provide.
Second, this is not about competition considerations winning out over consumer protection ones. Effective competition makes a powerful contribution to consumer protection. The reasons for the FSA putting forward these proposals now can be found in the London Economics report published last year.
The IFA distribution channel has been successful in taking a bigger share of the sale of packaged products. There is no problem with that but we have to recognise that there are still a large number of consumers who, from choice or otherwise, are using the tied channels. Is polarisation necessarily providing the best deal for them?
The report we published last year indicated that a greater proportion of less well-off consumers use the tied distribution channel and that, given the way polarisation operates at present, these consumers are not necessarily getting the benefits which can be generated by greater competition and innovation.
The present proposals are therefore directed at reaping those benefits for consumers using the tied channel. But we have made a cautious start, beginning with those areas where the risks to consumers are relatively limited – stakeholder pensions and Cat-standard Isas.
We have also framed the proposals in such a way that it is clear who is responsible for advice given on “adopted” products. So we hope we have avoided the pitfalls which some of the industry predicted had we decided to allow multi-ties or white-labelling.
Our proposals also include proposed relaxation of the rules for direct-offer financial promotions. It would mean that, where no advice is given, adverts and websites would be able to cover the products of as many providers as the firm judged to be commercially sensible.
The current requirements about making clear that no advice was being given and where consumers could go to get advice if they were unsure about suitability would remain. This proposal would facilitate the development of fund supermarkets and would provide a level playing field for direct offers.
We hope all those with an interest will take the opportunity to respond to this firststage consultation. It may surprise some but regulators can and do change proposals provided that they are presented with well argued analysis and facts. Mere assertion that the status quo should be left alone is not enough.
Looking forward to later this year, the second stage of consultation will be a wide-ranging review of polarisation. It will have the benefit of research findings about the importance of status relative to other factors that consumers take into account when deciding how best to purchase investments and how they will be likely to react to different ways of presenting information to them.
Once policy options for moving forward have been identified, we will consumer-test specific disclosure wording so that we may be clear about what would work best. We will probably also look at the basis on which advisers are remuner ated as part of the review.
The second stage will be a very challenging project for the industry, consumer bodies and regulators. It represents a major opportunity to take a long look at the structure of the market which can only be done once in a while.
We look forward to a highquality dialogue to maximise our chances of making the most of the opportunity, with the aim of securing consumer protection first and foremost and also achieving a stable framework within which the industry can operate.