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A consumer&#39s view

Could we be seeing a change of tack from the regulators?If so, it could explain the enthusiasm for depolarisation at the FSA.

As soon as the Financial Services Act 1986 came into being, it became apparent that events were not turning out entirely as planned.

What the Government wanted, and expected, from regulation was a massive rationalisation of retail financial services. It hoped to end up with a few big firms – pref-erably 15 or 20 life companies and bancassurers – which were easy to keep tabs on and vulnerable to Government pressure.

The more “financial advisers” that went to the wall the better, so far as the Govern-ment was concerned, because of the difficulty and expenses of regulating this disparate band of individuals.

But things did not turn out that way. When the Financial Services Act was first implemented in 1988, virtually everyone predicted it would be the death knell for the intermediary. Or, at the very least, the numbers of firms and individuals would fall dramatically.

In the event, the opposite has been the case. According to FSA statistics, in 1992 (the earliest year for which figures are available), there were approximately 6,000 registered IFA firms and 21,119 registered individuals.

By 1998 there were only 3,511 firms but there were still 22,000 registered IFAs – indicating that impartial advice is just as highly valued as ever.

The fall in the number of firms reflects the fact that, with high compliance and IT costs, it is more economic to deliver independent advice from bigger firms.

In business terms, IFAs have been an even greater success. ABI statistics reveal that in 1994 IFAs sold 46 per cent of individual regular premium pension policies, rising to an astonishing 58 per cent in 1999.

The proportion of single-premium life business sold by IFAs over the same period rose from 58 per cent to 63 per cent. Meanwhile, single premium pension business went up from 59 per cent to 73 per cent during the last quarter of 2000.

This is not at all to the Government&#39s or the regulator&#39s liking. How do you police and put pressure on 22,000 individuals or 3,500 firms, all with a different mix of business and clients, some niche players, others generalists and most with their own idea of what the customer wants?

“Perhaps we should stop trying to regulate the advice process and concentrate on the products and the product providers.” This was the remark from one senior FSA official recently and could easily account for the retrograde proposal to depolarise.

Forcing IFAs to become fee-charging – virtually over-night – if they want to retain truly independent professional status would force a majority of existing IFAs into become multi-tied agents.

The biggest multi-ties would, of course, be operated by the high-street banks and building societies. And there are not too many of these to regulate. Indeed, the number is shrinking by the day and, with recession hitting virtually all financial institutions, more shotgun marriages and take-overs look imminent.

Once you force most of the “advice” industry into the arms of the big retail financial institutions everything gets much easier. The selling process applied by multi-tied agents of bancassurers and life companies becomes the responsibility of the institutions concerned and it is up to the institutions to police and monitor the activities of their agents.

Moreover, if you also apply regulation to the products – as the Government has done with stakeholder pensions, controlling charges and to a large extent terms and conditions – the only difference between one company and its products and another is investment performance.

Since the FSA is of the opinion that the difference between the best-performing product and the worst owes more to luck than judgement or expertise, you have built a substantial case for saying that nobody needs advice any more.

This is totally untrue – as any IFA worth his salt could prove. But it does largely get rid of the requirement for the regulator to monitor the activities of individuals giving advice. If the multi-tied agents step out of line, the FSA can come down on the parent companies like a ton of bricks. Is this not the real reason why we are being pushed into depolarisation?


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