Depolarisation will see the IFA sector develop into a four-tiered market as it segments to reveal the extent to which advisers actually are independent, says FSA managing director David Kenmir.
Speaking at a Money Marketing round table last week, Kenmir said many IFAs are not truly independent and predicted that the new depolarised regime would make it easier for consumers to understand the status of an intermediary.
He predicted a multi-level market with, at its base, a generic advice tier which does not yet exist and a commoditised tier doing high volumes of execution-only business.
On top of these tiers would be an advisory tier and for the highest income level, an holistic planning tier. Kenmir says he anticipates an increased emphasis on fees rather than commission at the higher tiers.
He said the new disclosure regime would help genuinely independent advisers against banks as the value their advice is adding would be more visible. He also said the jury was out on whether the bancassurers would steal market share as for the first time they would be forced to reveal their distribution costs.
Kenmir said: “IFAs are not a homogenous lot. There is a substantial minority who call themselves IFAs but who are not because they limit the service or product they offer or limit themselves in some other way.
“Genuinely independent IFAs should not have anything to fear because clarity around services should give a competitive advantage over other tiers. This is something that will help IFAs' brands to develop in the market.”
Central Financial Planning director Ian Smith says: “That bottom tier will be putting money into investment markets and these people who are most vulnerable are getting the least advice and being sold a product because it is cheap.”