Director general Paul Smee explains why the Association of IFAs' response to the London Economics report opposes wholesale redefinition of polarisation while acknowledging the need to re-examine some aspects of the system.
I am always really annoyed when people use their editorial space to promote themselves and their businesses. So you won't catch me reminding IFAs of the star-studded and reasonably priced Aifa conference on September 20. They will just have to go to the Aifa website at www.aifa.net to find out for themselves.
No, I will stick with polarisation and I hope that you will listen carefully because I will write this only once.
Aifa has made its response to the FSA about the London Economics report on polarisation – its text can be found on our website. As with most of the respondents whose submissions I have seen, we identified some serious practical problems with the wholesale redefinition of polarisation which would work against the interests of investors and would cause massive disruption for uncertain gain.
We were especially concerned that investors would be confused by advisers who claimed to be sort of semi-independent in some sort of multi-tie.
We also suggested that the report was far too sanguine about the effects on IFAs, who could come under a lot of pressure to relinquish their independence, and we commented on the costs of change which would, after all, be ultimately carried by investors.
So we ended up supporting the retention of the essentials of polarisation while acknowledging that there are some details which do need re-examination. For example, the different SROs have different interpretations of what polarisation precisely entails and these cannot survive in a single rulebook. Thus, some adaptation is needed.
Nor can a responsible industry overlook some of the problems for those who use tied salesforces. But Aifa has indicated that these can most effectively be tackled on a case-by-case basis which leaves the structure of polarisation intact to the benefit of the investing public at large. We have even suggested some imaginative ways of addressing particular issues.
We now wait for the FSA to make its views known to the Treasury which, in the words of the Financial Services Act, must decide whether the anti-competitive effects of polarisation (identified by the Office of Fair Trading in its August 1999 report) are no greater than is necessary for the protection of investors.
Sorry to spell this out in mind-numbing detail but it is worth remembering what this is all about. This is the last time that the process will be played by these particular rules.
As Money Marketing pointed out last week, the new legislation gives the Competition Commission the task of determining whether any rule of the FSA has a “significantly adverse effect on competition” and whether that effect is justified given the FSA's regulatory objectives.
Given the tortuous path down which the present examination has come, we must hope there is a decent interval before our industry is opened up to a similar investigation on polarisation or, indeed, any topic.