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FSA&#39s caution boosts pro-polar campaign

The FSA has had a mixed response to the results of the first phase of its polarisation review. Some have applauded its caution and apparent willingness to listen to the concerns raised by the industry.

Others have criticised the random nature of its decision and have been left more unsure than ever of the intentions of the regulator towards polarisation.

The decision last week implements the proposals raised in the FSA&#39s consultation paper 80 on polarisation released late last year. Of the three main proposals, two will be carried through while the third is shelved for consideration.

From April 6, stakeholder pensions are launched and will be depolarised so product providers can import another provider&#39s offering. At this point, IFAs will not be able to multi-tie to providers and direct salespeople or franchisees will only be allowed to sell the products approved by their company, including any imported from a third party.

There will be no external benchmarks to ensure the stakeholder imported is the best or most suitable on the marketplace. It will be up to the provider to ensure their advisers are making the newly established tie known to investors.

The imported stakeholder will be known as an adopted packaged product, with the distributing provider responsible for any advice, while the product provider is responsible for the administration and servicing of the product.

The second proposal to be adopted is the removal of direct-offer promotions from polarisation. This includes internet fund supermarkets and Isa guides produced by IFAs.

When the FSA finally gets its full authority, it plans to change the way that Isa guides are promoted to end confusion.

While the plans to depolarise stakeholder are to go ahead, the FSA has decided not to do the same for Catmarked Isas. The original intention was to depolarise these because the regulator said they, like stakeholder, are a simple product with little chance of consumers misbuying. Now it has decided against such a move. The reasons given are there is a concern that consumers would be confused. The industry says there could have been a danger the Isa market would be distorted as Catmarked products would be more widely available than others. This is where the industry is divided in its response.

Many observers are convinced that stakeholder is being depolarised because the Treasury is determined to make it a success.

LIA public affairs director John Ellis says: “Depolarising stakeholder pensions was inevitable because the Government wants them to be more widely sold. But I am sceptical that depolarisation will increase the numbers sold.”

Aifa director general Paul Smee says: “Politically, it must be realised that the Government wants stakeholder liberalised because it feels that maintaining polarisation will get in the way of the product.”

This camp says the FSA has been pushed heavily by the Government when it comes to polarisation and does not believe last week&#39s decision is any indication on what is going to happen in phase two.

They raise the point that while stakeholder may not be very complicated, suitability for an individual investor often can be. Given the bigger pension picture, they say the idea that consumers will be able to make sense of it without advice is unbelievable. Skandia Life pensions marketing manager Peter Jordan says: “It is a bit difficult to understand why they have done this. Surely stakeholder pensions are more complicated and more in need of advice than Catmarked Isas?”

Consultancy Cap Gemini Ernst & Young vice-president Shaun Crawford says: “There has been no acknowledgment about stakeholder confusion despite the fact that this possibility definitely exists. This reaffirms the viewpoint that this whole exercise is Treasury-led.”

But others are more positive. They say the decision to remove Catmarked Isas from its plans indicates a willingness on the part of the FSA to listen to the industry and take on board some of its concerns about scrapping polarisation.

Consumers&#39 Association senior policy adviser Mick McAteer says: “I am glad to see a more gradual approach adopted. We think the potential for detriment with stakeholder is quite limited. It is reassuring that when necessary the FSA has shown itself able to take advice on board.”

Clerical Medical head of strategic marketing David Shelton says: “The FSA has taken a cautious approach and that is exactly right. Any changes should be carefully considered. This suggests that it is responding to reaction from the industry, which is encouraging. The key point is that it does not need to go any further than this.”

Whatever the interpretation of the results of phase one of the review, the question is what happens in phase two? Is keeping Catmarked Isas polarised an indication the regulator is softening its stance on further change? Or is it delaying its plans until it has had more time to look into the matter?

Smee says: “The FSA is moving ahead cautiously and evidentially. We have a chance to influence its decision but I would not go as far as declaring that we have won yet.”

The battle to keep polarisation is far from over and perhaps the FSA&#39s decision indicates it is not lost. The prevailing opinion only two weeks ago seemed to be not if polarisation goes but when. Now those who are committed to keeping polarisation are heartened.

McAteer says: “The industry now has a better chance to make its case and persuade the regulator not to roll out the second phase of the review. Everything is still to play for.”

But there is still the very real chance polarisation may disappear under phase two. IFAs should take the next four months to stand up and shout to anyone who will listen about the value of independent advice.

IFA Syndaxi Financial Planning principal Robert Reid says: “I do not think anyone should breathe any sighs of relief. The FSA is not softening its stance. They have done all they could do given the limited timeframe they were looking at.”

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