It has been pondered over more than any other subject in financial services this year and now the depolarised world has finally arrived. The long debated menu and the rules that will change the face of financial services are now in operation. But is the industry ready?If it is not, then much blame, many industry figures believe, lies firmly at the doors of the Treasury and the FSA, which have not been able to disclose the new rules until the very week that they are meant to come into effect.
Lobbyist Cicero managing director Iain Anderson says depolarisation has turned into a huge challenge for the industry as it is getting the rules on the day that the interim period starts. The rules take full effect in June next year so there is little time for adviser organisations to come to grips with the new regime. The general picture, says Anderson, is that a lot of firms are not ready to manage the change.
Anderson points out there will be an issue with lobbying on behalf of the industry. He says: “This is both an opportunity and a threat for the intermediary sector. With a robust figure like Aifa director general Paul Smee leaving the industry, it is very important that Aifa fills this seat quickly with someone that will be effective in lobbying on behalf of IFAs.”
Sesame commercial director Charles Bryant believes there is never an ideal time for a move such as this but that although Smee will be missed, Aifa as an organisation is bigger than just one man. He also believes that a lot of lobbying work will come down to the networks, which have a vested interest in maintaining the advice distribution model as viable: “We are representing around 6,500 advisers – most of whom I believe will remain whole of market and we, in particular, will champion all the different models that we provide,” he says.
Bryant believes there is a lot of work to be done educating consumers and getting ready for practising in the depolarised world. He believes the preoccupation with the divide between independent advisers and multi-tie operations is divisive and to an extent peripheral. He says: “The key messages of depolarisation are consumer choice and disclosure, not independent versus multi-ties. Every adviser, regardless of what model they choose, will have to change the way they do business.”
He reminds advisers that if they are to stay as IFAs they will need to offer some form of fees and all intermediaries will need to be able to use the new menu of charges.
Bryant is worried that many advisers who believe that staying independent means they will not have to weather a transition are kidding themselves as their business systems will need to change.
The advisers that will have a headstart, says Bryant, are those that already have a fee structure in their organisation. “Many IFAs will generally sit down with their clients and explain that, in certain circumstances, commission will be cheaper for them and in others a fee will be the most cost-effective term of engagement. Those advisers used to working in this way should have no problem in adjusting to a depolarised world.”
Bryant also believes that banks and building societies will now pose tougher competition for IFAs. Until now, the two big problems for banks have been their single-tied nature and the fact that their charging structures are “unbelievably unclear”.
But Bryant says the depolarised world will make it easier for banks to become multi-tied, possibly making them more competitive although a clearer charging structure may play into the hands of IFAs.
“IFAs will not need to reinvent themselves because depolarisation will put the spotlight on the value of advice. Banks will not be a cheap as they now may look and the customer will now be aware that even if they are charged more by an IFA, they will be getting value for money in the shape of advice,” he says. This feature, says Bryant, will also play into the hands of effective multi-tied agents.
Tenet managing director Simon Hudson disagrees. He believes the multi-tie argument has just muddied the waters and is not convinced it has any benefit to consumers. “The only people I can see this benefiting are bancassurers and providers that would love to see a return to the old days of tied agents. Consumers will be more confused than ever and depolarisation doesn’t suddenly ensure them cheaper products,” he says.
Hudson says he has not yet seen a multi-tie model that will benefit consumers but it may make life a little easier for some advisers. “If you are an adviser doing business with usually only four or five providers, then multi-tie is probably a good proposition. Whichever model you choose, advisers need to re-engineer their business and then simply concentrate on the practice of giving good advice,” he says.