Imagine the scene. In a dark corner of a bar in Canary Wharf, a man is responding to a question about his latest project. “I am the architect of the polarisation review,” he states boldly. Those assembled gasp and exchange glances.
The statement evokes a reaction powerful enough to cut through the traditional British reserve. The man, who shall remain anonymous, is challenged to defend his position.
Even now, many months after the original announcement was made, people across the industry regard the imminent dismantling of the polarisation regime as cataclysmic. It seems a great many intelligent people with years of industry experience behind them remain opposed to change.
It is not just IFAs who have taken this stance. Nearly all elements of the industry, as well as the media and august bodies such as the Consumers Association, believe multi-ties will not deliver benefits to the consumer.
When was the last time such factions were united on one issue?
Yet you should believe FSA head of policy David Severn when he says the polarisation review is not part of any secret agenda on the part of the FSA to do away with independent advice. It is more likely that the real motivation is to sell as many stakeholder pensions as possible through banks and building societies.
Which ever way you turn in the polarisation debate, the Government is in the frame. It is interesting to watch Treasury economic secretary Melanie Johnson's attempts to sidestep responsibility with quotes such as: “Savers will be the winners from the FSA recommendation to modernise the rules on polarisation” and “Enabling tied agents to offer a wide range of savings vehicles will pave the way to provide more real choice for consumers and help to encourage the savings habit.”
The FSA claims the aim of all this is to improve choice. Head of consumer policy and research Victoria Raffe says: “We are trying to get consumers to think for themselves but we are not going to reach everyone. So we have to introduce competition to the tied market.”
It is great to hear that everyone is so focused on the benefits for the good old punter. But it surprises me that more has not been said about what the consumers themselves think about all this.
Research on this issue was carried out for London Economics in April last year. It involved around 1,000 interviews with recent purchasers of packaged investment products. Although a sprinkling of its findings were quoted throughout its report, the research has never been published.
So I took up the cudgels and asked users of Interactive Investor whether they felt polarisation made any difference to them. Forty-seven per cent said polarisation did matter to them because they wanted to be sure they could get genuine independent advice.
Forty-two per cent said, having never heard of polarisation, they were not sure it made any difference to them. Eight per cent said they understood polarisation and felt it had made a difference to them. Just 3 per cent said change would be welcome as they would like to see more competition.
One user commented: “To the ordinary guy or gal in the street, the new proposals may appear to make things a little clouded. The problem is currently that a large number of IFAs are limited to a panel of investment companies, possibly the ones that give more favourable commission rates.
Transparency and then some is a necessity to bolster the investment confidence of Joe Public, thus alleviating the mistrust that currently prevails.”
And my personal favourite: “This change is to investors what foot and mouth is to farmers.”
Mick McAteer at the Consumers Association is more eloquent. “The existing polarisation regime is not perfect but that is no justification for undermining the principle of clarity. This will just increase confusion and, when there is confusion, people end up being ripped off or getting a bad deal. In the end, confusion actually prevents competition as consumers cannot put competitive pressure on providers if they do not understand what is going on,” he says.
Multi-ties are likely to lead to greater competition for distribution, which could end up disadvantaging consumers in just the way the Government is trying to prevent. Advisers will tie to the biggest groups – no doubt because they offer the most attractive commission rates – leaving the small companies, often with the most innovative or best-performing products, out in the cold.
We will not know the true value of polarisation until it has gone. A new period of confusion looms. The FSA believes this can be clarified in a multi-tie regime by enhanced disclosure and is beavering away at this as I write.
Short of offering an all-expenses-paid Caribbean holiday with every key features document, they have got their work cut out for them.