The consultation on the FSA's paper CP80, Reforming Polarisation: First Steps, is taking place under an industrywide mood of resignation.
The fear is that the exercise is being carried out to help stakeholder pensions rather than to improve financial services.
Under the proposals for the first stage of reform, polarisation for sales of stakeholder pensions, Catmarked Isas and fund supermarket products will be abolished. This will allow product providers and their tied agents to sell products from more than one provider for the first time since polarisation was introduced back in 1988.
The consultation on phase one is of crucial importance to the wider debate on polarisation. Principles given away cheaply at this stage will not be won back on round two.
Aifa, the LIA and several major life offices have made detailed responses to the FSA, setting out their concerns and reservations over the proposed changes.
Aifa remains unconvinced that diluting polarisation would benefit the consumer. It feels the current rules are clear and watering them down could have a negative impact on confidence in the market.
It believes the FSA downplays the importance of suitability when considering stakeholder pensions and Cat-standard Isas, which could leave consumers buying stakeholder when their financial priorities should lie elsewhere.
Disclosure of the status of advice by tied agents worries Aifa. The London Economics report of July 2000 showed 80 per cent of consumers understand whether their advice is independent or limited to the products of a single provider. Aifa is concerned that the introduction of a third type of adviser will increase confusion in the marketplace.
Competition could be affected if changes to polarisation are made, according to Aifa. Its written response says: “It would be most unfortunate if, in the wake of liberalising polarisation rules, the industry focused on securing its distribution to the detriment of the consumer.
Aifa points out that a healthy sector offering independent advice, with no contractual links to any provider, makes market entry by new providers significantly easier.
The success of stakeholder is arguably one of the Treasury's aims in instigating the review. Aifa is concerned that the FSA has not considered whe-ther the proposals ensure that stakeholder is sold to the right people.
The comparisons that the tied salespeople will make will be with other forms of pension provision and not the client's other financial needs. Furthermore, how direct salesforce staff will be trained is not addressed.
Aifa calls for verbal confirmation of status under the new arrangements and written short, clear and repeated “health warnings” on company literature.
Aifa director general Paul Smee says: “In spite of concerns expressed both by the industry and those representing the consumer, the FSA seems determined to continue with its plans for this partial liberalisation of polarisation.
“But their proposals do throw up serious concerns about how the consumer is advised on a suitable product and how the consumer is made aware of the basis on which advice is being given. These are critical areas, especially when one looks to the next phase of the FSA review.”
Autif agrees, believing the move will fail consumers by increasing costs and reducing the availability of truly independent financial advice.
The Consumers' Association warns that removing polarisation would create huge consumer confusion, Aifa's reservations and concerns are generally reflected across the whole of the industry.
In its response to CP80, the LIA raised concerns that the product provider should be made the point of contact for queries, complaints and redress.
It is also concerned at the criteria that a firm will use when adopting another product.
The association has several proposals on this point – that a provider should only be permitted to fill a gap in its product range rather than including competing alternatives; a requirement that a firm adop- ting a product should be required to consider its likely suitability, including the return that the customer is likely to receive, seen against industry norms; and an explicit ban on a firm selling its own products in competition with the adopted product.
The LIA response says: “We think that, to encourage a sensible debate, it is important for the FSA to make clear it is not proposing multi-tie agency.
“There is a widespread perception that agencies are to be granted more freedom to choose their portfolio of products when, in fact, sole agency is being maintained, albeit with the possibility of the principal 'licensing' agents offering a slightly wider product range. We are firmly against multi-ties because of the confusion they would create.”
Life companies are cautious about the proposed changes. Norwich Union supports the introduction of gap-filling on Catmarked Isas and stakeholder pensions but supports a period of reflection on the benefits or otherwise of the first wave of changes.
While Clerical Medical head of strategic marketing David Shelton says: “We have no problem with permitting limited gap-filling through tied distribution.If a provider decides to put more products on their shelves, it does not really have an impact on IFAs. If this is as far as the changes go, it is fine. We do not want multi-ties.”
Scottish Life sees the main target group for stakeholder as most likely to be hardest hit by the effects of the minimum income guarantee and pension credit, rendering their stakeholder pensions inappropriate purchases.
The Edinburgh-based life office's formal response document expresses concerns that the changes are being brought in at a time when the marketplace is awash with change, with stakeholder and electronic trading.
Scottish Life fears the radical nature of this change will make it impossible to assess the consequences of alterations to the rules of polarisation while the consequent risks will undermine market confidence, in contrast to the statutory objective.
It adds: “The statement that stakeholder plans 'are not so heavily reliant on advice as personal pensions' is an extremely dangerous one and is potentially very misleading.”
Royal & Sun Alliance is sympathetic to the Government's goal but says things are too loose at the moment to assess the scope for change accurately. R&SA portfolio research and development leader Neil Southworth says: “We understand where the Government is coming from but the whole scope is too open to see if reasonable change is possible or not.
“But we think tied agents should only be allowed access to one stakeholder. Currently, a tied agent advises between product types. In the pensions arena, they will be advising between stakeholder and personal pensions.
“The tied adviser has not had the past experience in advising which company to choose and variants on products. Access to only one stakeholder fits in with their current experience and the principle of tied advice.”