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FSA U-turn axes polarisation

The FSA has admitted to a policy U-turn which will see polarisation ditched in favour of a new system of tiered advice including multi-ties, gap filling and limits on how IFAs are remunerated.

FSA head of conduct of business David Severn, who is heading the review, has admitted that the regulator changed its mind since its open meeting in October when it appeared to be backing away from wholesale reform of the polarisation regime.

The proposals will see the introduction of five levels of advice, multi-ties, the abolition of the better than best rules, new disclosure rules and a “defined payment system” forcing up-front disclosure of fees by advisers if they wish to maintain their independent status.

The move has been widely criticised by MPs, IFAs, providers and consumer bodies which warn it will lead to the dilution and shrinkage of the IFA brand and infringe upon consumers&#39 ability to receive impartial advice.

A main recommendation by the regulator is the proposed introduction of multi-ties which, although lacking in detail in the consultation paper, would allow advisers to tie to any number of providers while still working on a comm-ission basis.

Severn says there is no conflict between forbidding IFAs to earn commission while allowing multi-tied agents to do so.

He says it is not within the FSA&#39s power to ban commission as bodies such as the Office of Fair Trading may have issues with such a move.

He concedes, however, the fact multi-tie or “distributor” firms will still operate on a commission basis might “put up the red alert button” for many consumers who may not trust commission-based advice.

Norwich Union sales and marketing director Peter Hales says: “If there is significant shrinkage in the number of IFAs as a result of this, then changing polarisation will have been a failure.”

Severn says: “There was more than two months before the FSA board reached its final decision. Of course, things change.”

Polarisation under axe – pages 2,3,5,7,10,12

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