Some recent letters in this publication have had a musical thread running through them and I shall continue in that vein, being reminded as I am of the mid-1970s song Pick up the Pieces by the Average White Band.
Sufficiently popular at that time to reach Number 1 in the US charts and for me to play on hospital radio, the title is now relevant to consumers in the post-depolarisation environment. The breaking up of the present structures will take us back to the 1970s in terms of the potential for the abuse of sales practices.
This regulatory change is forcing financial advisers up and down the land to review their business strategy, along with many product providers. The same cannot be said for the banks and tied salesforces which have lobbied so consistently against polarisation since its inception in 1988, such that the Treasury has now caved in to their demands and we have this dreadful mess looming.
We now have the situation where deals are being negotiated and some IFAs will be deciding how best their client bank can be run. Others will be negotiating deals where the cash incentives are greatest to boost short-term profits. In the quest for buying market share, particularly with Sandler-charged contracts, will the financial strain on those providers be such that they will disappear into oblivion in the short to medium term?
The focus is solely on the future and fundamental decisions will have to be taken in a relatively short space of time.
The fatal flaw with all the new proposals is, of course, in relation to the long-term nature of contracts that are entered into and how they will be looked after in the years ahead. For some, it is very easy to forget that, without satisfied clients, there is no business. Yet the financial services industry seems to have been doing its level best to dissuade clients from making sensible financial plans so as to secure their long-term financial future.
What we now have is the prospect of a veritable free-for-all and what otherwise might be termed a churners' charter solely because of the imposition of depolarisation.
Picture the scene where a range of investment products have been sensibly accumulated over a period of years. Regular reviews have been undertaken but suddenly the previous IFA has now become multi-tied and is no longer transacting business with, say, half the providers previously recommended. Do they refer the client on to another independent for advice in relation to those contracts or does it present an opportunity for a replacement contract to be sold which may be of questionable merit for the long-suffering client?
The position is no different for previously tied advisers, particularly among the banks, who will be anxious to promote the rather wider number of contracts than has hitherto been allowed. Will the poor investor ever realise whether they are being looked after properly through the transition from one contract to another? This might be a move for the better to improve long-term prospects or, at worst, they might be moved from the frying pan into the fire. It seems unlikely that there will be much incentive to offset the penalty costs of leaving the original contract and moving to the new one, not to mention the potential for tax charges that could well occur as part of the transaction.
Of course, the very worst scenario is for those individuals who have a collection of contracts accumulated over the years who become orphaned clients due to depolarisation and find that no-one is prepared to give them any support on what may be modest investments because they do not fit into the tied sector, nor are they in a position to be able to pay the fees of an IFA because there are far fewer to contact in any event.
The changes also represent a wonderful opportunity for the unscrupulous advisers who, having sailed close to the wind for a good number of years, can suddenly jump ship to the security of a tied arrangement, leaving behind them a flood of complaints which may find their way ultimately to the compensation scheme. Given the number of transactions already going through this process, the figures are going to look horrid for some years to come.
No guesses as to who will pick up the tab.
Are we really to believe that this nightmare scenario was properly thought through when looking at the changes? One wonders just who will be left to pick up the pieces.
Nicholas Conyers is a director at Pearson Jones