THE First stage –
Depolarising stakeholder pensions
The Government argument, as we see it, is that it is justifying a more liberal regime for stakeholder because it is kitemarked and has tight cost controls. In this, the Government solves the problem of the need for advice with decision trees and aims to boost distribution with limited bank multi-ties.
Being a Government-controlled product does not mean that stakeholder will fit all circumstances. It is difficult to imagine a bank salesforce referring stakeholder buyers on if there are more appropriate products offered by IFAs.
Decision trees are helpful but only in parallel with advice. The FSA's own numbers, revealed by Money Marketing, show a host of people failed to complete them on their own. To run a distribution experiment with a new pension remains reckless in the extreme.
Depolarising Cat-standard Isas
The Government stance is that the Cat standard on Isas will protect consumers.
Deliberately favouring the distribution of these products brings the FSA very close to endorsement – a risk already inherent with Cat standards. Most equity Cat Isas are trackers, not necessarily a clever recommendation in stockmarket volatility.
Depolarising direct offer fund supermarkets
The Government argument is that direct offer should not be afforded the halo effect of being IFAs but this move also includes fund supermarkets Health warning
The “halo effect” argument is a strong one but it risks removing a regulatory protection from the direct-offer area where there are already suggestions of sharp practice.
As for supermarkets, it is hardly satisfactory simply to ignore them. Limited fund supermarkets could be used to set up as de facto investment multi-ties, making a farce out the second stage on the investment side.
Even a cursory glance at Isa sales reveals a need for more independent advice not less, with an established pattern of buying at the top of the market hardly a good way to encourage long-term investment.
Second stage – the threats
Threat one – complete depolarisation
Consumers may face a new type of social exclusion, with large sections of middle-income groups unable to get independent financial advice if a significant section of IFAs tie.
Such a system would see niche IFAs and some bigger outfits remaining independent but with commercial pressures forcing generalists and, so the theory goes, the networks into tie-ups. In the current market it is better to say you are an IFA than a tied agent. But it will be commercially difficult to turn down cash injections from providers to multi-tie.
Any decision by the FSA must revisit how much damage could be done to consumers' access to independent financial advice. There are too many experts warning that IFA numbers will reduce dramatically for the FSA to rely on the London Economics report which said that IFAs would not be significantly affected.
Threat two – gap filling
Limited gap filling will only help banks and providers' internet-based operations. IFAs will have to work visibly very hard to demonstrate their added value. In business terms, they should keep most of their market share although consumers will be confused.
What should IFAs do?
The first message is to hold tight. While stakeholder may already be lost, no other changes are inevitable, though intermediaries should be prepared for the worst. Every business should at least have plans A, B and C.
IFAs must continue to build their skills, particularly in investment knowledge which will be at a premium, as will expertise in advising corporate clients and post-retirement planning.
Have faith in clients. Most IFAs are already immunised at least against the threats from high-street bank advisers and top-end wealth managers by dint of their client relationships.