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FSA&#39s polarisation plans attacked from all sides

A long queue appears to be forming of interested parties looking to point out the weaknesses in the FSA&#39s proposals to change the polarisation regime.

No longer is it just Aifa or individual IFAs who are taking pot shots at the reforms.

In last week&#39s Money Marketing, the Consumers&#39 Association came out with all guns blazing, criticising the FSA and claiming the regulator will have failed in its statutory objective to protect consumers if it insists on pushing through its proposed reforms.

Lloyds TSB, which many IFAs believed would be one of the biggest winners from depolarisation, attacked the proposals, saying they will only lead to fewer providers and greater consumer detriment.

Last month, a group of MPs and peers representing all the main parties had a volatile meeting with FSA managing director John Tiner, where they told him in no uncertain terms that CP121 was going to do nothing to increase savings in the UK.

Other product providers, including Scottish Life, Standard Life and Abbey National Group, have criticised the defined-payment system, saying it places an unfair burden on IFAs but not on other types of advisers.

Yet, despite this mounting opposition, the FSA remains silent. The only public statement it is making at present is that it has received over 500 responses to CP121, which must surely be a record in terms of interest in FSA consultations.

There is no indication if all the criticisms, complaints, concerns and attacks are falling on deaf ears or if the FSA is actually listening and maybe realising the degree of opposition that exists to its plans.

Some fear that because of the public way that the FSA endorsed its proposals when it published the paper in Jan-uary it will be difficult for it to back down now.

Consumers&#39 Association senior policy adviser Mick McAteer says: “We think it is going to be tough for the FSA to back down because of the way they set out their stall in favour of the proposals so publicly. But a simple evaluation of their proposals shows they will do nothing but damage consumer interest.”

It is the CA&#39s comments which have been some of the most comprehensive and most interesting to come to light so far. The body is one of the few about which it can truly be said it does not have any vested interests in the debate.

Many of the rest, from Aifa to providers, even the OFT – which has been calling for the abolition of polarisation virtually since its introduction – could have been expected to say what they did. But the only agenda the CA has is that it is looking after consumers.

So when it comes out with comments such as: “The FSA&#39s plans are hugely risky for ordinary consumers and will increase the grip that the big banks have on the financial advice market, making it even more difficult for consumers to save for a comfortable future”, one must believe that the regulator would have to sit up and listen.

Yet in January, when the CA made its initial reaction to CP121, the FSA&#39s head of the polarisation review David Severn called the organisation “daft” and “misguided” for maintaining its support for the current regime.

There is much substance to the CA&#39s proposals. Like others, it is against the defined-payment system, saying IFAs should be allowed to continue charging either fees or commission.

It believes any adviser other than an IFA should be forced to call themselves a salesperson so that consumers do not confuse them with someone who is working in their best interests. But representatives of tied advisers such as the LIA reject this as outrageous.

Director of public affairs John Ellis says: “I think this is going much too far. What they are basically saying is that all advisers would have to be independent. All advisers, no matter what type, have conduct of business rules regulating what they can and cannot do.”

The CA has expressed fears that it will be existing customers of life and pension providers who will lose out the most. The argument goes that with the dash for distribution that many are predicting will happen (if it is not already), providers will be reaching deep into their pockets to snap up IFAs – or at least try to enter into multi-tie relationships.

As providers are not likely to swallow these costs themselves, the CA reasons, the money spent will eventually be recouped by increasing charges to customers.

Aifa says while there is a degree of merit in this fear, existing consumers will lose out because the money being spent will leave niche providers and new entrants finding it very difficult to compete and the main distributors offering poor-value products to consumers.

The CA takes this point on board in its response, saying unless a duty of care is placed on the big distributors compelling them to offer best advice, they will view the gap-filling relationships they enter into as only a commercial decision.

The response also calls for a return to the maximum commission agreement, saying it will prevent providers from effectively buying up distribution through commission.

Calling the MCA the most effective way of preventing upward pressures on costs, the CA says “only this way will true-value providers be able to compete with bigger producers who can buy up market share.”

The CA also says the quality of tied advice will deteriorate under the FSA&#39s proposals because in the past it has been poor and they have only had one line of products to deal with. Enter things such as suitability and choosing between products and the CA believes consumers with these organisations will suffer.

All in all this makes a pretty damning list of criticisms. Only time will tell if the FSA acquiesces to what has to be an incredible amount of pressure placed upon them.

Politicians, high-street banks, product providers, IFAs and their representatives – and now the CA – have all criticised what CP121 aims to achieve.

The ball is now in the regulator&#39s court as it decides what course of action it will take. All the industry can do is wait.

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