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Declaration to consumer replaces better than best

The FSA is to scrap the better than best rule, replacing it with a declaration to consumers of any financial ties to providers and a prohibition on sales targets linked to inward investment as part of consultation paper 166: Reforming Polarisation.

As proposed in CP121 in January last year, the draft rules for depolarisation will see the end of the rule which prevents IFAs placing business with providers owning more than 10 per cent of their firm unless they can demonstrate it is the best product available.

The regulations obligate IFAs to tell consumers about provider holdings in their firm of more than 5 per cent and ban any form of sales targets or similar incentive from providers to invest in their firm.

Firms doing more than 20 per cent of their business with any one provider will be compelled to inform the FSA and explain why. IFAs must also reiterate their links to providers at the point of sale if the product is from one of their backers.

Providers and IFAs say the new rules are sufficient to protect the independence of firms receiving investment.

Skandia Life managing director Nick Poyntz-Wright says: “We would welcome the move as the current regime has been somewhat artificial and there was a need to knock down the barrier to investment in IFA firms.”

Franklins Financial Services partner Neil Franklin says: “If you want to be a national IFA, you need capital and the easiest way to get that is from providers. I do not think IFAs will have any problems meeting these criteria but I also do not think that consumers particularly care.”

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