Other people's logic is often interesting, sometimes irritating and always worth questio ning. Polarisation, we are now told, is anti-competitive and redu ces consumer choice.
Do you remember when con su mer protection was rec koned to be underpinned with polarisation, a maximum commission agreement (abolition of which caused commission to rise, much against the aims of those who campaigned for its demise) and a compensation scheme? Maintaining one out of three isn't bad – in football terms it is relegation form.
Enabling company agents to sell other companies' products is being mooted to allow these agents to sell Cat marked products such as stakeholder and Isas. Obv io usly, regulatory control over product design has allowed new thinking. Perish the thought that perhaps the powers that be actually seek even more help from the industry in delivering sales of stakeholder pensions. Surely regulation cannot be in their way?
The fact that banks, building societies, supermarkets and other tied representatives will distribute a var iety of companies' products will confuse the public no end.
“I have selected XYZ Life as being a really good company for most of my clients' needs. In certain specialist areas, such as stakeholder, I have set up arrangements with AB&C Life and the Hartlepool Philanth ropic, both of which can invest your monies with, in total, over 100 other funds.”
I have heard all this before (pre-1988) and also the comment that “my broker is with XYZ Life”. There are many excellent company representatives but they are not IFAs. Grass is green but all that is green is not necessarily grass.
Distorting the clear distin ctions between intermedia ries by introducing a “mongrel” is damaging for con sumers. Consumers can currently choose between making investment arrangements with a single pro duct provider or, if they want the widest choice, through an independent adviser. The system does not red uce choice, it just gives clear options.
IFAs keep products competitive not only in terms of price but also performance, policy clauses, conditions and levels of service. Let us have the differences between the two channels emphasised, not narro wed. Both have important roles to play.
Might I suggest that IFAs should be paid through fees. Clients could either write a che que or fund the fees in whole or part from commission. In the IFA sector, com mis sion should be a disclosed way of contributing to the payment of fees, not an alternative to fees.
The vested interest of banks in widening the choice they offer is obvious. Origin ally, they chose not to operate as IFAs, obviously believing they could make more money and have more control by operating in the tied sector. Consu mers were not considered then.
Consumer bodies have reacted strongly against the notion of a third but hybrid channel. Consumers are now much more knowledgeable and independent advice is their preferred choice.
IFAs also have a vested interest – in their case, in pre ser ving their way of providing advice. They also have an unash amed wish to preserve the value of businesses built over many years.
Do not forget we are the agent of the consumer in a regulated environment (company representatives, however good they are, do not have similar legal responsibilities) and our potential liabilities have been treated no differently from the product providers which actually sit on the invested monies.
After considerable work developing their status and improving standards, it is small wonder IFAs are up in arms about a levelling up of the differences between them and company representatives. IFAs do not have office exp enses, regulatory dues, and liabilities paid for. These are awesome costs.
Some IFAs will undoubtedly reconsider their status in the strange new world of investor detriment consequent upon regulators starting this particular ball rolling. Fewer IFAs will result. Commission wars will occur. Golden hellos will be offered to capture a distribu tion system. Plainly, there will now be a way, ignoring consu mers' best interests, to have your cake and eat it.
IFAs whose clients value independent advice enough to pay for it will prosper. Polarisation will be redef ined as those who can pay and those who cannot. Financial exclusion. Poor consu mers.
Len Warwick is managing director of Warwick Butchart Associates