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FSA probes policies for cash bias

The FSA has launched an investigation to determine if IFA commission levels affect the products and providers they recommend to clients.

The regulator is demanding that life offices supply it with information about the commission they pay IFAs on the extent of their product range.

Life offices must hand over the numbers of new policies sold and the commission paid on single premiums and regular premiums on 53 products over the last five years.

The findings of the probe will be published but the FSA has no plans to consult IFAs before it does so.

The industry is questioning the motivation behind the request which was made by the consultancy Charles Rivers Associates on behalf of the FSA which, as reported in Money Marketing last week, is looking at any possible relationship between commission and sales volumes.

In the correspondence from CRA, product providers are asked for information about the commission they have paid to IFAs.

The FSA says at this point that it is only requesting the information but if providers fail to comply, it may make it compulsory under PIA regulations.

One life office insider casts doubt on Charles Rivers Associates&#39 ability to handle such detailed information.

Providers were originally given three weeks to hand over the information but this was extended to six weeks after protests from the ABI.

FSA spokeswoman Jackie Blyth says: “We have a major econometric analysis of the effects of commission payments on sales of packaged products. We want to look at whether product or provider bias exists among IFAs.”

One life office source says: “They are trying to prove a qualitative issue but they are beginning from a quantitative starting point. The original London Economics report made a lot of leaps of logic from numerical information to judgemental conclusions and the danger exists this may happen again.”

Another industry source says: “The scale of the exercise could be called unreasonable. One must ask the question whether the FSA needs all of this information. It must also be asked whether the people carrying out the work need this information based on the extent of work they previously have done.”

The work comes as part of the FSA&#39s ongoing phase two review of the polarisation regime.

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