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Polar stations

When it comes to sales of and advice on retail investment products, the ABI believes the interests of consumers, regulators, advisers and providers are pretty close to one another. These groups would probably all agree that the following three overall aims are crucial – to ensure consumer protection through transparency and product quality; to promote competition, allowing innovation and efficient markets; and to promote more effective saving to help people maximise their financial resources.

Any rules or proposals for changes to them, therefore, need to measure up against these three aims. The ABI believes the current system has done a good job as far as the independent sector is concerned, particularly by developing consumers&#39 understanding of independent advice and where to get it.

However, we believe there could be scope for improvements in competition in the tied sector. Melanie Johnson, in her letter in the September 21 issue of Money Marketing, highlights that now is a good time to look at the rules again, pointing out new products and new delivery channels have developed and customer expectations changed. The question is how to bring about improvements without compromising the benefits of the existing system.

The report commissioned by the FSA from London Economics suggested introducing multi-ties would offer the greatest benefits in terms of economic theory. However, there are significant margins of error around the critical assumptions that led to this conclusion, in particular, the likely levels of consumer confusion and the number of firms that would become multi-ties.

The research in the FSA&#39s report shows that, although awareness of independent advice is improving, 20 per cent of consumers still do not understand what type of adviser they are seeing. This figure would undoubtedly increase if multi-ties were introduced. The FSA&#39s own consumer panel has recently expressed concerns that introducing multi-ties could cause the IFA sector to shrink significantly. These effects would not be in line with the Government&#39s objectives.

Nor does the time look right for such radical change. The impact on the market of stakeholder pensions is still uncertain and so are the effects of what look likely to be far-reaching technological developments. As the FSA consumer panel further points out, changing the fundamentals of polarisation could throw the retail investmentindustry into turmoil.

The ABI supports an approach to the tied sector that builds on the strengths of the current system. We have supported further work on option four of the London Economics report, namely retaining the essentials of polarisation. It would allow the clear distinction between IFAs and tied advisers to remain and would retain clarity for customers about advice and status. It would allow tied agents to introduce products from other providers to fill gaps in their own ranges, increasing competition within the tied sector and promoting consumer choice and product quality.

It will not be straightforward to design a gap-filling regime that will satisfy everyone. The concept of a “gap” will need to be cast carefully to ensure that competition is indeed improved without inducing a “slide” towards multi-ties.

As many commentators, including Melanie Johnson, have pointed out, the IFA sector is highly valued by consumers and has played an important role in promoting savings and investment.

It will be important to ensure, in the context of any gap-filling regime, customers are clear about the status of independent advisers compared with tied ones. There are other issues to consider such as responsibility for product performance and literature, rules on commission and how training would be organised.

These issues deserve further work. If the right sort ofa gap-filling regime can be developed, it could match up well against the three aims of consumer protection, efficient competition and more effective saving.

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