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A consumer&#39s view

The outcry following the FSA&#39s proposal to scrap polarisation is not

going to go away and quite right, too. It is hard to see how such a

move could benefit consumers in the long term.

The proposed changes to allow multi-ties and compel IFAs who want to

retain true independence to charge fees owe less to any concern for

consumers than to bancassurers&#39 fears at the increasing proportion of

business that IFAs are rounding up.

The figures speak for themselves. In 1989, soon after polarisation

was introduced, IFAs accounted for 39 per cent of all long-term

savings and pension business by value. By 2000, that proportion had

leapt to 55 per cent and is still increasing.

But the FSA&#39s proposals, coupled with other changes which are taking

place, do raise important points for IFAs, product providers and the

future of regulation. First, the requirement for IFAs who want to

remain independent to charge fees is a sensible and logical step. It

is no use arguing that clients will not pay fees. They must be

educated to understand why it is in their best interest to do so. No

one would expect an accountant to be remunerated by commission from

the Inland Revenue and there is a clear conflict of interest.

What is wrong with the proposals is the near immediacy of this

changeover. Why not phase out commission over a period of time, say,

three years, so that IFAs have an opportunity to persuade their

clients that the change is beneficial and clients have time to get

used to the idea? Chancellor Gordon Brown operates this strategy most

effectively when raising taxes.

What also makes the proposals for fee-charging unacceptable is the

fact that they are coupled with the proposal to allow sales

organisations – make no mistake, that is all multi-ties are – to sell

through the high-street banks and building societies. If the FSA&#39s

reforms were genuinely driven by concern for consumers rather than

appeasing the powerful bancassurers&#39 lobby, it would see the

reintroduction of multi-ties as the unacceptable compromise that it


What is needed is for the FSA to get off its backside and get on with

its education programme so that the man in the street recognises the

real value of genuinely independent advice. While it is true that

consumers are depressingly apathetic about their finances and that

the man in the street was much more likely to be sold a policy by the

Man from the Pru than seek out an IFA, the FSA&#39s job is to change

this attitude, not take the path of least resistance.

There is also an important question which was not addressed by the

FSA. To what extent is the reluctance of lower-income families and

individuals to consult an IFA to do with the fact that they do not

have any money to save?

While they might succumb to the sales patter of the mortgage lender

or estate agent to take out an endowment-linked homeloan, a high

proportion of these homebuyers rapidly cash in the endowment – almost

invariably at a loss – because they cannot afford the extra cost.

What use is choice if the reality is that you should not be sold any

investment products at all?

Even if the FSA&#39s proposals go ahead, there is no guarantee that

depolarisation will redress this problem of lack of choice for

smaller savers.

The 1 per cent regime imposed by the introduction of stakeholder

pensions is having the widely predicted effect. Nobody is selling

individual policies to middle-income families because the commission

is too low. The vast majority of individual stakeholder policies (as

opposed to employer schemes) have been taken out by relatively

wealthy families with non-taxpaying spouses and children, advised by


Some IFAs have dealt with the low commission problem by continuing to

recommend personal pensions on the grounds that this allows them to

give ongoing advice. But if the Occupational Pensions Advisory

Services&#39 recommendations to the Government&#39s pension review are

taken seriously, which they should be, then personal pensions will be


As other products come into line with the stakeholder 1 per cent

regime, the advantages of multi-ties, which allow sales organisations

to appear to give independent advice while still receiving

commission, will gradually disappear too. Who is going to sell any

savings products at all to the man in the street if this happens?


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