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FSA is charging in where it should not tread

Let&#39s get this into perspective. The IFA domination of the market for long-term savings and pensions has not been caused by polarisation. It has developed because of the qualities and services offered by independent advisers.

Equally, changes to polarisation do not erode those qualities. The FSA research is worth a look – not least because it affirms rather than contradicts the research which Aifa and IFA Promotion mounted recently through Advice First.

Why do consumers go to an IFA for advice? Because they are independent (nearly half of all respondents) specialists, able to advise on a wide range of products – not because polarisation rules inhibited their first choice of tied adviser.

Why do consumers go to a bank or building society for advice? Because (in nearly two-thirds of cases) they know the bank over a long period of time.

So there are an awful lot of consumers whose habits will not be altered by changes to polarisation.

Interestingly, most of those who had recently bought a financial product indicated they would prefer to use an independent adviser, whichever channel they had bought through. So independence is a franchise and a brand which resonates with the consumer and which should not be lightly discarded.

Which brings me, albeit reluctantly, to CP 121 and the future of polarisation.

It is a strangely bloodless paper which reads as though it is an analysis of a rather rem-ote market, based on a theoretical model in a text book.

Having commissioned res-earch which indicates consumer preference for independent advice, the FSA casually concedes that abolition of polarisation is likely to cause the IFA sector to shrink. Couldn&#39t the FSA have managed a vague expression of regret or at least a reference to omelettes and breaking eggs?

The logical deduction from the research is that the availability of independent advice should be strengthened, not reduced.

Then the paper runs out of steam. The remuneration arrangements for those calling themselves independent advi-sers are exhaustively – if incomprehensibly – detailed but then the whole tied sector which is expected to wax as the IFA wanes is consigned to the briefest of mentions, as though this was an optional add-on, not central to the creation of a fair market.

Of course, the industry will be able to come up with proposals of its own (and Aifa can play this game as well) but it suggests that the drafters spent a disproportionate time on independent advice rather than on the whole framework.

What of the defined payment system? I have long argued – not least in this column – that IFAs should be totally up front about what they charge; what services the consumer receives in return and why this represents good value for money.

The recent research bears me out. The inhibition on going to an IFA is, in the eyes of many consumers, the worry that commission will bias advice.

The IFA community needs to address the issue of bias in the belief that it has nothing to hide and a service to be proud of and also because,in spite of their concerns, commission remains the consumer&#39s preferred option of payment.

But I cannot see why this should become the subject of such detailed regulatory intervention. I have not yet grasped quite how the DPS (as doubtless we will come to call it) will operate. It may be less cumbersome in practice than it reads in the CP but it does bring the FSA into the front line of client/intermediary relationships and I am not sure if this is the right place for the regulator.

It again opens up the disparity of treatment with other channels of advice.

CP 121 requires an awful lot of further thought before it represents a practical way forward for the market.


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