It is a truism in every walk of life that all new regulation or legislation always has unexpected outcomes, often dramatically so.
My favourite example of this is the prediction of the OFT back in 1987 that if polarisation were allowed to be implem ented, then it would destroy the market for independent financial advice.
With that salutary lesson in mind, let's look at what the FSA is trying to achieve with its review of polarisation and, in particular, with the short-term changes that are out for consultation in CP80.
CP80 proposes the depolarisation of Catmarked products and stakeholder pensions and for all products for directoffer business.
So, a new phrase has ent ered our language – adopted products. This is the code for the products that tied agents will be able to sell from outside their current marketing group.
The FSA press release says it is aiming to achieve four objectives with these changes:
1. Secure greater access to, and choice of, good value products for consumers.
2. Remove regulatory barriers which may impede com petition and innovation unnecessarily.
3. Clarify the status of authorised firms for consumers.
4. Clarify where responsibility lies for complaints and redress.
The second objective seems to me little more than a nod at the Treasury and the OFT. The extent to which the FSA will have to invent new rules to prevent consumer detriment from proposals means the barriers will be raised, not removed.
Turning to the third objective, I have real difficulty in understanding how the status of advisers can be clarified by the introduction of adopted products which tied agents will be allowed to sell.
The FSA makes great play of the London Economics' statistic that says 20 per cent of clients do not understand the status of their adviser, hence polarisation does not deliver clarity. To my way of thinking, the fact that 80 per cent do understand is an endorsement of polarisation as having delivered very considerable clarity.
The fourth objective is doomed from the start and is an area where the FSA really should reconsider. The proposal in CP80 is that the tied agent's host office should be responsible for the advice given about adopted products but the company supplying the product should be responsible for the product terms and the admin around servicing its policyholder.
It sounds like a recipe for disaster to me. The FSA indulges in some wishful thinking elsewhere in the CP where it says: “The firm that sold the product is then responsible for ensuring the complaint is handled either by itself or the firm that issued the product, dep ending on the nature of the complaint.” Oh, that's all right then.
When investment performance is crap, is that the fault of the adviser or the investment manager? Think carefully bef ore you answer.
The FSA has already signalled its unhappiness with the propensity of some senior managers to abdicate respon sibility where they have outsourced key elements of their operations to third parties. Barclays has effectively outsourced its entire packaged products operation to Legal & General.
The FSA should make Barclays' senior management just as individually respon sible for L&G's performance as they would if Barclays had bought L&G. That would focus minds.
I have left the first objective until last because it is the only real objective. The rest are risk or PR to varying deg rees. But my evaluation of the FSA's ability to predict the future will have to wait until another week.
Tony Kempster is former chief executive of DBS Network