Perhaps the most surprising thing about CP166 is that there are no big surprises. However, this does not mean there are no interesting developments.
Before examining these, we should take the opportunity to cautiously welcome and even congratulate the FSA on proposals for market liberalisation, which will be an important step forward in providing consumers with increased choice while still providing a basis for independent advice to flourish.
For a regulator to introduce such a deregulatory package requires courage. It has often been too easy in the past to over-regulate in an attempt to provide consumer protection. This has done little except burden the industry with excessive costs which have prevented the very same people the regulator wanted to protect from getting advice and suitable products. We have asked for this – let's not waste the opportunity.
We support the possibility for IFAs to be better capitalised through abolition of the outdated better than best rule.
Any notion that this change could be to the detriment of consumers will be assuaged by suggested rules which will make it clear to consumers where an investment of over 5 per cent has been made in the distributor by a product provider.
This clarity will be provided in the guise of a new initial disclosure document.
It is also encouraging to see the FSA supporting IFAs through its decision to opt for the menu approach. This should enable IFAs to choose an operating model which suits their clients and their own firm's business circumstances.
So, what will the new world look like? This is a question likely to vex the minds of many over the next few months. Whatever the problems presented by polarisation, by its very nature, it made the decisions regarding business models easy – you were either one thing or another.
Within the new world, the decision on business models has moved from the regulator to the chief executive.
For those not currently operating a choice proposition, consideration will be given to the question of whether the costs of introducing choice (T&C, IT, etc) will be outweighed by the benefits to consumers which this choice brings with the resultant increase in business volumes and profits.
Thus, while the proposals allow for the most labyrinthine operating models imaginable, economics will ultimately determine the proposition offered to market. Clearly, the answer to this question will depend on the nature of a firm's client, their needs and also on the point from which they start the journey.
So is it all good news?
Of greatest concern is the proposal set forward to allow “out of range” recommendations. Here firms would be able to go outside the range of products initially disclosed to consumers, so long as this “out of range” product was suitable and “no less suitable” than any other product within that range which the firm has disclosed to the consumer.
In introducing this measure, the concept of range seems to have become both a regulatory and a deregulatory tool. It is hard for it to be both and, in our view, could lead to significant consumer confusion. In our view, commercial practice will limit the use of this.
There are also a number of measures contained, which could shape the way in which multi-ties evolve. The extension of the indirect benefits rules to multi-ties, along with banning volume overrides, are clearly measures to ensure that commerciality does not get in the way of consumer benefit, as is the proposal which allows firms to broaden the range of products on offer, but not to restrict it.
I believe these issues should be left to disclosure and transparency.
For many firms, the multi-tie route with the possibility of choice and enhanced operating efficiencies may still prove alluring. One thing is for certain, those taking decisions for their businesses over the next 12 months will have a lot to think about.
Peter Hales is sales and marketing director at Norwich Union