After popular demand following our article of March 22, Money Marketing is this week publishing correspondence from the Treasury economic secretary Melanie Johnson to Conservative MP John Randall in which she defends the Government's decision to relax polarisation.
In recent issues, we have run articles reporting that Johnson suggests advice is not necessary for stakeholder and a subsequent article in which Johnson is apparently at odds with Social Security Secretary Alistair Darling, who has been often quoted as saying he believes advice is necessary on sales of all pensions.
It has been suggested that we took the contents of the letter “out of context”, so we have decided to publish the letter for clarification and let the readers decide.
Below is the full version, in which the minister clearly spells out her opinions on advice for stakeholder.
28 February 2001
Thank you for your letter of 8 February enclosing correspondence from your constituent, Mr Neil G Fyfe of Yiewsley, Middlesex about polarisation.
I was sorry to read of Mr Fyfe's concerns. The FSA is reviewing the current polarisation rules, which date back to the earliest days of the current regulatory regime for investment business, established under the Financial Services Act 1986(FS Act). The polarisation rules mean that authorised retail financial advisers must either advise on only one one provider's products (tied advisers) or on the whole market (independent financial advisers – IFAs). The FSA proposals would, on a phased basis and subject to consultation, ease the restrictions on tied advisers enabling them to offer the products of a range of providers. Consumers would benefit from both a greater choice of products and from improved competition in the market.
I have noted Mr Fyfe's views that these proposals will confuse people. However, the FSA's consultation makes clear the importance of all advisers having to disclose their status to their customers to avoid any confusion between tied, multi-tied and independent status. In addition, all firms that are authorised to carry on investment business are, and will continue to be, required to comply with measures designed to protect the financial interests of their customers. These measures include rules to make sure that their advice to their customers will help them to make suitable and informed investment decisions and that the products recommended are suited to their customers' individual circumstances and to their particular investment requirements. The FSA has statutory-based objectives to protect consumers and to promote better understanding of financial products and so it attaches a good deal of importance to these rules.
The FSA's approach to updating polarisation will apply in the first phase to stakeholder pensions, Cat standard Isas and direct offer promotions. With regard to stakeholder pensions, consumers stand to benefit from their built-in minimum standards and from decision trees. Cat standards are a voluntary benchmarks for the cost, access and terms of Isas. Cat standards will allow small and new savers to recognise products which are straightforward, clear and fair and which will give them a good deal. Direct offer financial promotions help consumers to self-select investments from a wide choice. The FSA proposals take account of the way that the current polarisation rules restrict consumer choice and reduce the availability of these consumer benefits.
In addition, whilst financial advice can be valuable, it is not a necessary condition for all savings and investments that are suited to people's individual needs and circumstances. For example, Catmarked products and stakeholder pensions are products whose standards mean that investors should be able to get a good deal without needing to pay for financial advice.
I hope that this is helpful.
Melanie Johnson MP