What's it all been about, then? The regulatory about-turn over polarisation certainly prompts me to wonder whether anything has been achieved as
a result of the mountain of
rules and regulations heaped on financial advisers since
I first became a financial journalist back in 1978.
At that time, the Insurance Brokers' Registration Act was coming into force and the Financial Services Act was still around eight years away.
In 23 years of writing about the industry's affairs, hardly a month has gone by without a consultative document landing on my desk, a new consumer protection rule being introduced or a code of conduct being changed.
Yet, while the regulatory environment has become ever more concerned with the minutiae of running a financial services business, the scale of the financial disasters that have actually hit the public has become bigger.
A bureaucratic obsession with small print failed to prevent the pension missell-
ing fiasco or the Equitable
My seven years as a consumer watchdog on the Sunday Times Money pages, investigating harrowing stories
of incompetence and corp-
orate greed, certainly strengthened my appreciation of the need for adequate consumer protection – and money management education.
But the constant legislative changes forced on the financial services sector have only served to exasperate me. As soon as the public has begun to understand how a system works – giving some hope of consumer protection – the regulators (including the Inland Revenue) have changed things yet again.
The scrapping of polarisation is simply the latest in a long line of moved goalposts. Just as the general public was getting to understand what independent advice was all about, so the bureaucrats have come along to snatch it away. It was the same story, of course, with Peps and Tessas – transmogrified into the Isa just when they were beginning to be understood.
What makes me particularly angry about the proposed scrapping of polaris-
ation is that, in the need to adapt, the industry has been forced to spend a huge amount of resources over 15 years –
I get a strong sense of
d…j vu. Back in 1978, when
I was editing a journal called Policyholder, the life insurance industry consisted of agents tied to a single company, firms that had agency agreements with various companies and a small minority of truly independent intermediaries. In other words, we have now come full circle.
I cannot help but feel that those intermediaries that choose to continue to follow the “IFA” route this time around might find themselves in the same position as those insurance intermediaries
who opted to sign up with the Insurance Brokers Registration Council back in the 1970s and 1980s.
This entitled them to call themselves “insurance brokers” – but IBRC members (all of which had to offer independent advice) soon discovered that this costly route held few benefits when the general public had no idea what separated an “insurance broker” from
an “insurance consultant”.
The question now is whe-ther the public will ever learn to differentiate between an IFA and whatever the new “distributor” firms choose to call themselves. Probably, most people will not bother to try.
There is an old adage that life insurance is sold, not bought. Much the same goes for all packaged investment products although, with the development of direct mar-
keting, sales techniques have become much more soph-
isticated than they were 20 years ago.
The fact is that only a tiny minority of investors will choose to pay an up-front fee for the privilege of going to somebody who wants to call himself an “independent financial adviser”.
What's more, whereas it was (just about) possible for a journalist to explain in one paragraph the difference between a tied agent and an independent adviser, it will be far more difficult to explain the proposed range of alternative distribution methods.
The FSA argues that consumer education is paramount, yet it is seeking to introduce a system so complex that the public will struggle ever to understand it.
All that said, I fear that in practice the great trek to the poles was bound to end up where it started. In an article in Money Marketing's millennium edition, I explained why I felt forced to back a horse called multi-tie.
The reason was simple – the economic argument would ultimately win the day, with the bigger outlets persuading the authorities that special deals with a limited number of suppliers were in the consumers' interest.
Perhaps Government ministers and regulators should take a course in chaos theory. This tells us that the more complex the system, the more unpredictable its results – and I believe that, as regards protecting investors, these results may indeed be exactly the opposite of what the Government intends.
Let us have a movement against complexity within financial services. Or, as another old adage puts it: Keep it simple, stupid.
Roger Anderson was the founding editor of Money Marketing. In conjunction with Centaur Communications, he is launching headlinemoney – a website specifically aimed at providing ind- ustry information to personal finance journalists (email roger.anderson@headline money.co.uk)