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Don&#39t give away ground in manoeuvring on polarisation

Many have interpreted Money Marketing&#39s remarks on the need for Aifa director general Paul Smee to take the gloves off as a call for a Garry Heath-style campaign. This was not our intention.

It might have been better to suggest that, rather than abandon diplomacy, Smee needs to be less diplomatic, as much with product providers which are slowly but surely breaking ranks on the issue, as with the Government.

Autif has now joined the ABI, stockbrokers, accountants and friendly societies on advocating or accepting change. They should not go uncriticised and at least they have thicker skins than some ministers and officials.

What happened to Garry Heath was a travesty of democracy. The Government might as well have ordered his head delivered on a plate. But, once it had acted in this way and no matter how unjust it was, the industry probably had no choice but to find someone more diplomatic. It also needed a single trade body.

Yet the whole episode casts a long shadow because Aifa must walk a very difficult line between negotiating with an often hostile, manipulative Government and doing what is right for its members.

On polarisation, for example, the Government seems set on railroading through change.

Phase one – removing polarisation from stakeholder, Cat-standard Isas and direct-offer firms including fund supermarkets – has received acceptance from the ABI already. Aifa fears it is a lost cause.

If it is a fait accompli, what is the harm in acceptance?

There are serious dangers in this approach. First, the fact that phase one has already been decided, despite the charade of a consultation, demonstrates just how Machiavellian the Government can be.

This is reinforced by the fact that Treasury economic secretary Melanie Johnson used the finding that 31 per cent think banks are the best place to get independent advice to argue for change.

Yet 63 per cent disagree. This much abused and twisted statistic actually puts a positive light on the current set-up.

We are also concerned about what happened between London Economics publishing its report on polarisation and the FSA response. We know Treasury officials told everyone the status quo was not an option – an unacceptable interference but one that worked.

It led to suggestions of gap-filling, embraced by Sofa and Aifa with little enthusiasm, although, helpfully, it did allow the ABI to establish a common position.

But the Treasury had what it wanted – by getting everyone to accept change, the current system was much more easily labelled a problem.

This could easily be repeated for phase two, with a strong risk of the Government arguing to bring the whole system into line.

But there are concerns that go beyond lobbying tactics. If polarisation goes, it should be in one stage with a simultaneous change in disclosure, not in panicked piecemeal measures. A staged change is a ludicrous way to reform a system that risks misbuying and misselling.

Stakeholder sits within a mind-numbingly complicated environment. There are mnore than a dozen possible types of pension arrangements to be coped with. Unless you simplify this, it is actually very dangerous to remove polarisation.

There is also very serious problem with low-risk, low-charging products, whether pensions or Isas, getting preferable treatment in terms of distribution and tending to favour trackers, particularly in a stockpicker&#39s market.

Poor or negative returns will hardly help launch the new pension.

Clearly, direct-offer and fund supermarkets present a challenge to the existing set-up although discount brokers argue that their direct-offer booklets are thoroughly researched, as with all other recommendations, and that lea-ving them out of a regime could encourage unscrupulous practices from fringe players.

As for supermarkets, most do not try to give advice although some providers&#39 websites are testing the boundaries. But why was it not possible to simply maintain the execution-only/tied/IFA divides?

It is on the fund supermarket side that the whole system is most vulnerable to be blown away. Why should an online service with advice be afforded separate treatment compared with an office-based arrangement?

As for life offices, there is a great problem as a result of phase one. Several insurers are already at the very least positioning themselves for multi-ties. We can hardly fault them for this. They are businesses, after all.

But it would be very difficult for an insurer, say Axa, to run a multi-tied website or for Legal & General to be part of a limited Barclays multi-tie on stakeholder and to argue against relaxation for the rest of the market. Hence, the risk that phase one is already hamstringing insurers for phase two.

For the record, Money Marketing has already said that if IFAs feel the business environment is too harsh and they have to multi-tie, then they cannot be condemned although we maintain they would lose a significant marketing advantage.

The problem for Smee and the insurers – who have not stabbed him in the back yet – is that they could be branded Neanderthal for opposing phase one. This is ridiculous and Money Marketing cannot cannot accept this.

But we do recognise the nasty corner that industry representatives, including the ABI, have been forced into.

But in their unenviable task, they should display great caution and include several prominent health warnings about how phase one could harm the most vulnerable consumers and the industry itself, particularly if the regulator does not have its wits about it.

The final problem is that, if the game is up for polarisation, the fight takes another dramatic turn on disclosure. It is at this point that Smee could really come into his own in terms of damage limitation, particularly in his relationship with the regulator.

It also does not spell the end of IFAs if advisers on an individual basis keep their nerve.

This will inform our view going forward, as next week we take our Poles Apart campaign to a new stage.

We accept that newspapers such as ourselves have freedoms which trade organisations on the front line, which face recalcitrant ministers and officials, do not.

If all is lost – and there is a need to concentrate on producing a fair environment for competition between the new class of adviser and the current IFAs or, heaven forbid, the disclosure paper includes a new raft of attacks on IFAs – we would not stand in the way of Aifa. But it must provide a clear justification for doing so to its members and our readership.

We will back these representatives as long as we are sure they have they interests of IFAs at heart and as long as we are sure they are not making fatal errors in strategy or tactics.

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