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Let sleeping dogs lie in polarisation debate

As the dust settled on the FSA&#39s open meeting on polarisation last week, I could only recall Sherlock Holmes and the case of Silver Blaze. “Then there was the curious incident of the dog in the nighttime,” said Holmes. “The dog did nothing in the nighttime,” came the rebuff. “That was the curious incident,” replied Holmes.

The dog who did not make an appearance at the Aldgate Conference Centre was the enthusiast for depolarisation. Barry Riley kept up his principled opposition which dates back to the late 1980s but no speaker or questioner from the industry suggested that a bright new tomorrow awaits the industry if only polarisation is scrapped.

Those who came to the meeting expecting the unveiling – or even a clear hint – of a future regime left with no FSA blueprint on which to ponder. The FSA will consult towards the end of this year but, when it says consult, it means “consult”. No options are being ruled out and no options seem to be getting favoured status.

There was a cottage industry of Kremlinologists springing up who offered advanced textual critiques of what the FSA actually means by particular phrases. But I prefer to stick to the mood music and prepare for a wide-ranging consultation at the end of the year. The status quo will be set alongside gap-filling and the total removal of polarisation as well as the idea of the “distributor company”, which appears to be what the FSA calls multi-ties.

I noted with interest the FSA comment that even if polarisation rules are scrapped, there will be some rules on status disclosure and on how companies can describe their services to clients. This statement immediately introduces a layer of complexity which will have to be fleshed out in the consultation paper.

I think this message is reinforced by the findings of the recent Swiss Re insurance report that the more consumers have the concept of multi-ties explained to them, the more they demand that the nature of the tie is spelled out.

This has cost implications for advisers and for the regulator. The devil of this debate will be in the detail of the various options – the commercial feasibility of what the FSA proposes can only be tested when its full explanation is available. We can take nothing for granted before then.

Of course, there was some new research on the table from the FSA. This adds to the mound of research from various sources accumulating on my desk. Is every client either a mystery shopper or part of a focus group?

But the research does not contain that killer fact which resolves the debate either way. The key issue for consumers is whether they trust the adviser concerned. I am not amazed and I doubt if many IFAs are either.

I do not see any evidence in the research that there is widespread misunderstanding of tied or independent status. In the eyes of consumers, each has different advantages and disadvantages.

Tied advisers have a big brand supporting them while independents have a wide range of products. You pays your money and you takes your choice. The FSA should recognise that changes to polarisation are made more complicated by this finding. As I have said regularly, it takes a lot more effort to change perception than to create it in the first place and no one, least of all the FSA, wants a less transparent market.

But there is some evidence which the IFA community has to take on board. Independent advice is perceived as tainted by commission. Given that the research also suggests that consumers remain unwilling to remunerate via fees, we need to tackle this perception head on.

What commission pays for and what services are offered in return have to be clear. This is a key issue and one to which I will return in a future column.


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