High-street banks will clean up in the new proposed regime after successfully leaning on the Government to open up the market to multi-ties, according to IFAs.
IFAs accuse the banks of leaning on the FSA and the Government to get their own way with depolarisation.
They say the lobbying campaign for depolarisation from the high-street banks has been stronger than that for polarisation and the merits of the IFA channel.
IFAs also believe organisations with distributing power will step in such as supermarkets who, under the proposals, could tie up to a range of providers and sell products cheaply.
The FSA argues that IFAs' 55 per cent share of life and pension business by premium volume is skewed by the effect of high-net-worth clients with more money to invest.
It says IFAs account for only 20 per cent of people buying products, with 80 per cent using tied advisers.
Plan Invest joint managing director Mike Owen says: “They have handed it to the banks on a plate. They will multi-tie and carry on taking commission as usual. This whole thing has been designed for them. They have leant on the Government and IFAs have a very small voice.”
Roberts Clark director Jo Roberts says: “The big players will win and there will be a free-for-all rush to multi-tie.
“Howard Davies has listened too much to banks – the people who will earn money from this – instead of the consumers who buy the products.”
A British Bankers' Association spokesman says: “We have 300 different members who have a whole range of business models and operate in different ways. This makes it very difficult for us to offer a position on how our members will be affected.”
Industry opinion is mixed over this week's announcement by the FSA proposing the scrapping of the current polarisation regime. Here is a selection of responses to consultation paper 121 from trade bodies and providers
Norwich Union sales
and marketing director Peter Hales:
“There is potential for considerable damage in the proposals, particularly surrounding the defined payment system. If there is significant shrinkage in the number of IFAs as a result, then changing polarisation will have been a failure.”
Skandia senior group marketing manager Peter Jordan: “The polarisation regime is effective and should not be changed. Despite what the consultation says about the uncertain consumer benefits to be gained, we do not believe there are significant long-term benefits. They will be marginal at best and may, after allowing for costs of dislocating the market, be negative.”
AMP UK managing director Tom Fraser: “While we welcome much of the FSA's thinking, I do have some concerns about how the independent sector will operate. Scrapping the better than best rule is an important decision and needs to be considered carefully so any alternative approach is very clear and works in the customers' best interests.”
Zurich Life chief executive Ray Greenshields: “We have long campaigned for a reform of the polarisation rules and our preferred option of gap filling is now possible. We believe this gives Zurich additional opportunities to grow through working with, and adding to, all types of distributor. There will be big shifts in the structure of the market and distribution will be key.”
Clerical Medical head of strategic marketing David Shelton:
“Research shows IFAs and their clients overwhelmingly want to retain independent status. The proposals support this in word, and partly in substance. Invest-ment by providers will be easier while there is a strong argument for a transition period towards fees. If this can be sensibly managed, these proposals may be an opportunity for high-quality advisers to continue to take advantage of an expanding market and make a rapid shift to even more professional status and financially secure businesses.”
AITC director-general Daniel Godfrey: “This unbundling of the cost of advice from the cost of the product, as expressed in the AITC's response to the Sandler review, will lead to improved standards of advice.
“Such a separation would mean investors would be able to buy direct without having to pay for advice they do not want and which they have not received. This would be a vital step in improving standards of advice as only those advisers who could demonstrate the value of their advice would prosper.”
Autif director general Richard Saunders: “It is very interesting. It is certainly at the more radical end of what everyone was expecting. There are some good things in there from our point of view. For example, the importance of maximising transparency in terms of the type of advice that the consumer can expect to be offered. Also, distinguishing the cost of advice from the cost of the product.
“On whether or not polarisation should continue, we have taken a neutral stance. We want to go through a thorough process of consulting our members before we go public with a formal response.”
IFA Promotion chief executive David Elms: “The FSA's consultation paper is called Making the Market Work for Consumers. These proposals will not make the advice market work for consumers. What they will do is make it harder for middle England to find independent financial advice. Consumer research and consumer groups have consistently argued that independent financial advice is the best form of advice for consumers but these proposals will, according to the FSA, lead to a shrinkage of the sector.”
Britannic Money chief executive Tony Ward:
“We believe the proposals may, if applied to independent mortgage advisers in 2004 when regulation reaches this market, have a detrimental effect on smaller broker firms.
“These smaller firms may not be able to afford independent status as it is typically their clients on middle to low incomes that are not prepared to pay fees.
“These clients may choose to buy direct from the lender, thus forcing the broker to drop the independent status and operate from a smaller panel of lenders which is not in the client's best interests.”
IFA fund supermarket Selestia managing director Brett Williams:
“We believe the FSA proposals will fail to meet their stated aims of increasing choice and imp-roving access to financial adv-ice. What this regime will herald is a new age of confusion for the consumer.
“Polarisation was introduced in 1988 because of confusion among investors and these recommendations just take us back to that situation. Since polarisation, consumers have increasingly opted for independent advice. All the evidence shows that the public generally feels comfortable with this system and now it looks likely to change again. We believe the results will be more confusion, less choice, and more power to the larger providers.”