The dice are heavily loaded against polarisation.
Even if it could be guaranteed that every single IFA in the country would
get their recommendations to clients 100 per cent right 100 per cent of the
time, the Government would still probably change the regime.
And there may be little that IFAs or their representatives can do to stop it.
Attention is currently focused on the study by consultancy London
Economics which is due for publication imminently.
The consultancy, which incidentally has nothing to do with the London
School ofEconomics, is now examining five options ranging from the status
quo through to a fully fledged multi-tied regime.
The study is also supposed to consider the much criticised Office of Fair
Trading suggestion of depolarising investment product advice while keeping
polarisation on life and pension products.
It does not have to reach one conclusion but will examine the pros and
cons of a number of options.
The task of whittling this down to one recommendation falls to the FSA
but, as always, the ultimate decision will be made by the Treasury.
But many polarisation advocates suspect the fact the LE study must take
account of future product development means the Government knows the answer
it wants already.
Their fears are compounded by the fact that, in private, Treasury
officials have said they want change.
In public, the Treasury is more subtle. Concerns voiced by Treasury head
of financial services Paula Diggle have focused on the perceived
inflexibility of the tied sector over stakeholder pensions.
Many believe the upshot will be some change allowing the tied sector more
scope to offer more products.
At best, this could mean white labelling, which would see tied life
offices, banks and building societies filling the gaps in their armoury
with the products of other companies.
In this scenario, a high-street bank might be able to offer, for example,
a Fidelity unit trust under its own brand, with the bank taking regulatory
This concept was put forward by the Society of Financial Advisers in its
original submission to the FSA in the belief that total opposition to
change would be seen as typical IFA obstinacy.
Even if it had wanted to, Aifa could not have taken such a step without
It backed the status quo in its submission but it has now accepted that
white labelling,if introduced, could be the least worst outcome.
But it should be remembered the term “white labelling” is a relatively new
one in financial services and confusion over the exact definition may prove
the real hazard.
It has been used to describe the fact that IFAs can brand the new fund
supermarkets with their own business identitybut this is nothing to do with
And when applied to the regulatory regime, it could contort into an
altogether different arrangement known as multi- product ties. This would
allow a group of providers to back an adviser with a product range, with a
lead company that would take responsibility for compliance and regulation.
It may owe a lot to Walter Mitty, but it is possible the Government is
dreaming of a scenario where fee-based IFAs would be forced up market well
away from the “vulnerable consumers”, with the vacuum filled by
multi-product tied advisers.
These advisers, so thetheory goes, would be easier to bring to heel. They
would also be much easier to sanction because, in the event of misselling,
the FSA would be dealing with bigger players. It would also represent the
ultimate Government revenge for delays to the pension review.
The multi-product arrangement is a recipe for allowing consumers to be
denied a full range of products.
In the worst case, it could see consumers being ripped off in the first
place for the dubious benefit of allowing the FSA to sort out the resulting
problems slightly more quickly but it may make sense in Government circles.
To make matters worse, the fact that mortgages will remain unpolarised
when they become regulated, could prove the Achilles heel of polarisation
for other products.
Allied Dunbar, which is proving increasingly fleet of foot on regulatory
issues, already believes it has a functioning multi-product tie arrangement
on the mortgage side so it can go to the Government with what it believes
is a proven system.
In addition, the benefits to the direct sales operations should not be
It is a widely held belief that many national IFAs and networks would
convert to a multi-tied arrangement on the back of their panel systems if
they were allowed to do so.
But how would networks fit into a multi-product tie? Their choice could be
to enter a direct arrangement with one provider or to remain independent
and they would probably choose the latter.
If this happens, the franchise operations will think Christmas has come early.
Of course, all this is so much speculation but the industry has been left
to speculate on what will happen because the Government, despite protests
to the contrary, does not seem interested in having an open debate at all.
This makes it very difficult for IFA representatives who are forced to
debate the issues behind closed doors, while trying to keep their
The task of balancing IFA sentiment with the need to keep your options
openin negotiations with a veryprickly Government department is an
But the representative organisations must be careful the white labelling
does not mutate from something that allows a bank to sell a fund mana-ger's
Isa to full-blown multi-product ties.
But how, if there aremoves to introduce such a system, can they resist?
Ifap is currently lacking a chief executive, while Sofa, the LIA and Aifa
seem to be divided, although there has been some shuffling together in
recent weeks so the differences may be patched up in time for a campaign.
There is also hope that the consumer groups and even national newspapers
will come on side, as theydid when the original OFT proposals were issued,
but their attitude to white labelling and multi-product ties remains
As for the IFA life offices, they may be alarmed at thesituation and are,
on paper,very powerful.
But these are the same life offices that have lost the two main arguments
about stakeholder on provision for advice and the effective exclusion of
with-profits funds from thepension product.
The problem for anyone advocating the system is that, because the
Government haschosen to identify polarisation as an obstacle to selling
stakeholder, it is going to prove very difficult to mount a defence.
But there is a silver lining.
The simplest form ofwhite labelling presents the regulator with the
smallest headache so a new regime could be in place just intime for
stakeholder's April2001 launch. It is highly likely that logistical
difficulties at the regulator led the Government to decide not to regulate
mortgages, so there is a precedent.
This practical barrier may bring the greatest hope that any changes will
But whatever the eventual outcome, IFAs should brace themselves for
change. The poles of polarisation look certain to move closer together.
The dice are heavily loaded against polarisation.