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Polar expedition nears the equator

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

widespread criticism.

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

constituency happy.

The task of balancing IFA sentiment with the need to keep your options

openin negotiations with a veryprickly Government department is an

unenviable one.

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&#39s

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&#39s 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

be minor.

But whatever the eventual outcome, IFAs should brace themselves for

change. The poles of polarisation look certain to move closer together.


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