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A consumer&#39s view – Lorna Bourke

There is an old saying that the conduct of the chief executive sets the tone of how business is done throughout an entire company. This is true of the Government, too.

Nowhere is this more evident than in the totally expedient and unprincipled way in which depolarisation is being pushed through by Blair&#39s yes men as a sop to the bancassurers for selling stakeholder.

But it is encouraging to see that even those who have pressed for depolarisation and the move to multi-ties are beginning to have second thoughts now that they have had time to digest the implications of their requests.

The most obvious result of depolarisation is that the majority of existing IFAs will switch to multi-ties rather than try to persuade reluctant clients to pay fees. Some estimates put the likely proportion of remaining independents as only one-fifth of all current IFAs. This is a seriously bad move in itself since truly independent advice will become even more difficult for the ordinary individual to find than it is now.

But what will happen to the millions of existing IFA clients who have shown that they appreciate the benefits of genuinely impartial advice when they are confronted by the fact that the person who had persuaded them of the virtues of independence is now trying to pretend that multi-ties are just as good?

Plainly, multi-ties are not and disillusion among clients will set in. There could be mass switching as disgruntled customers search around for a “real” IFA.

The implications for product providers could be even bleaker. CP121 does not stipulate the number of multities which will be acceptable – either a minimum or a maximum – or the length of the arrangement. The majority of existing IFAs admit that they transact most of their business with no more than 10 or 12 companies. Because they tend to use the same research, the likelihood is that the maj-ority use the same 10 or 12 companies – generally speaking, the biggest companies.

But if, under depolarisation, the maximum number of multi-ties is set at around this figure, what happens to companies 13 onwards? The answer is that they will be dead in the water. Nobody seems to have considered this ghastly possibility. The deleterious effects on consumer choice are blindingly obvious.

As Lloyds TSB succinctly puts it, depolarisation “will lead to consolidation into a few stronger brands, decreased competition and customer detriment”. A commission war would be more or less inevitable and the customer would be the loser, being forced to pay higher charges.

The Government, the FSA and the Office of Fair Trading pay lip service to the notion of wider choice for consumers and greater competition in the market to deliver cost-effective advice.

But the reality all along, since regulation was introduced in 1988, has been that the authorities want fewer providers, fewer IFAs and tied salesforces or agents, where the company carries the can for any mistakes.

Less is more, so far as the regulators are concerned, because control is then easier.

The sadness of this sorry mess is that, whatever happens now, the situation will only be worse than it was. Having roundly criticised polarisation on the grounds of consumer detriment and lack of choice, the FSA and the OFT, both of which allowed themselves to be prevailed upon by the Government, can hardly admit that they were wrong or that depolarisation will result in far greater loss of choice for consumers, higher charges and no likelihood of good advice being any easier for the ordinary person to find than it was before.

Perhaps the best that we can hope for is a compromise which allows multi-ties but also allows the phasing in of the proposed switch from commission to fee-charging for IFAs over, say, three years. IFAs can then prepare their clients for the changes and many might well prefer to pay fees if this were compensated for by lower charges.

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