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Polar Stations

The London Economics report too readily dismisses keeping the status quo.

Of the four scenarios listed, the least damaging to consumer interests is the approach known as “white-labelling”. Further consideration of polarisation should take into account not only economic analysis of competition effects but also consumer benefit, existing and potential, from clarity of status. Those who want to challenge the status quo should make a clear public case for the consumer benefit of their proposals. A case based on commercial benefit is not enough. The job of the FSA isto support consumers and not to further commercial strategies of providers in the marketplace.

It is our opinion that multi-ties would be a liability. A middle ground would be created where advisers of indeterminate status would be able to hold themselves out in a variety of ways, some misleadingly appearing to be like IFAs. Of course, some will argue that regulatory disclosure could take care of this.It is doubtful whether this is the case though, because the variety of relationships which would be set up and claims which would be made might well be virtually unmonitorable.

White labelling or product ties are tinkering at the edges, to create slightly wider choice for the consumer in tied outlets. There are essentially three options here: reinsurance; white labelling, where a company would buy in the products of another but sell them under its own name; and product ties where a company would buy in the products of another and sell them under the name of the company of origin.

Reinsurance would probably increase overall costs. Product ties would be manageable but there could be confusion in the minds of the public. White labelling avoids this confusion although transparency would be reduced.

Depolarising stakeholder products is just not a sensible option. Advisers could change status in the middle of a conversation unless their full service is under the same rules. The scope for confusion would be immense.

Costs of changing the status quo are difficult to determine too. London Economics did mention a figure of £20m additional compliance costs attached to bringing in multi-ties, almost certainly a massive underestimate.

Worryingly, apart from some research and the debate which is going on within the industry, some of which has leakedinto the more general press, there seems to be no plan for a full public debate on this issue.

A good deal of research has shown that the public, after a considerable period of time, is now in substantial numbers getting the idea that there is a clear distinction between independent and tied advice. Such research as there is on a possible new regime, is patchy in the extreme.

One point which must be emphasised here is that we cannot keep changing the rules just because we feel like it or see some theoretical benefits. It takes the public a long, long time to adjust to a new regime. It has after all been 12 years since polarisation was brought in and you will still find people who do not understand it. So we must have stability and maintaining the status quo is the best way to achieve that.

The confusion which could arise from a change to multi-ties is immense. The duties of multi-tie agents to the public have still not been fully established. The best course is to leave well alone. But if change is inevitable, white labelling would be manageable.

It does not seem to us that the consumer interest is anywhere in the debate so far, but the FSA clearly has a duty to take the consumer interest into account. Whether &#39political&#39 considerations might overshadow the decision, remains to be seen.

London Economics has made light of the effect its proposed changes would have on the IFA sector. There are ritual gestures in their report towards the success of polarisation so far, e.g. “the rules appear to have had some effect in reducing consumer detriment by clarifying the status of advisers in the eyes of the public”. But the effect of changing polarisation has really not been properly evaluated. The IFA sector would be severely cut back as a result of multi-ties, there would be a much lesser effect from gap-filling or white labelling, depolarising Catmarked products would effectively rule out IFA servicefrom a significant area of the market.

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