When we launched the Poles Apart Campaign some four months ago, we scripted 10 questions that demand ans wers before any change to the current distribution system occurs. We posted copies of the questions to FSA chairman and chief executive Sir Howard Davies and economic secretary to the Treasury Melanie Johnson.
We asked for both to provide answers to the questions. While we have received and subsequently published res ponses from the regulator and the Government, neither dealt with the questions posed and have refused to do so.
Money Marketing has dec ided to talk to the industry and see what it believes are the answers to these 10 questions.
As we are eager to continue the public debate until the time arrives when change to polarisation is a reality, we encourage anyone with a view on the subject to write in and let us know.
10 Questions That Demand Answers
1: What benefits can multi-ties, product ties, white labelling or depolarising stakeholder products bring to consumers which the current system fails to deliver?
The overwhelming response from the industry is that there is very little benefit for the consumer if the current situation is changed.
IFAs and product pro viders are sceptical about how any mix-up can benefit the consumer, saying the result will only be increased confusion. Some say high-street banks and other direct pro viders would benefit if they are allowed to offer other companies' products and the consumer going to them would therefore have more choice, although still limited.
But consumers who appreciate the value of truly independent advice would not benefit and would have more difficulty in identifying who is really independent in the industry.
IFA Chase de Vere savings and investment manager Anna Bowes says: “What benefits? There would be no benefits to the consumer.
“The consumer needs to know what type of advice they are receiving. This change is just clouding the issue.”
2: How much will any change cost to implement, who will pay for this change and by what method?
IFAs believe changes to the polarisation regime will result in increased costs to the consumer through more expensive products.
Advisers say the costs will stem from retraining, rebran ding, advertising, new admin systems and compliance procedures.
They fear these changes could cost up to £100m at a time when the industry is already burdened with the huge cost of implementing stakeholder and, as a result, these costs will be passed on to the consumer as providers will not accept a drop in profits.
IFA Promotion acting chief executive David Elms says: “The consumer always pays and this will be no exception. The changes will mean that there will be fewer product providers, which means dec reased competition and less pressure for competitively priced products.”
3: What possible changes to stakeholder and Isas could be made to increase the efficiency of distribution without requiring changes to the polarisation regime?
The Government's polarisation proposals are motivated more by its desire to distribute stakeholder and Isas than by an effort to improve consumer choice, say industry experts.
Advisers believe the Gov ernment is con
vinced that the most effective way of promo ting the products is through a multi-tied environment.
They feel that decision trees should not be used in isolation because they are too complicated and they want stakeholder providers to be forced to give advice so emp loyers are not left to explain stakeholder to staff.
Savills Private Finance managing director Mark Chilton says: “The Govern ment is being totally inconsistent and should be culpable if the product does not produce the right return.”
4: What evidence is there to demonstrate a new regime will increase savings levels, especially for pensions?
The industry believes that changes to polarisation rules will not encourage the public to put more money into savings and pensions.
Industry sources say the Government is targeting stakeholder at people on low inc omes who cannot afford to make pension contributions.
They believe there is nothing in the new regime to entice people to save more, so they are not expecting a significant shift in behaviour.
Scottish Mutual marketing development director Bill Don aldson says: “Pensions are the big intangibles so contri butions are too much for people with low incomes. I cannot see people rushing out just because of multi-tied agents.”
5: What plans are there for a full public debate before any changes are made?
Standard Life says a proper debate and a proper analysis are required on the changes the FSA has announced. IFA network DBS, alongside Aifa, will be speaking publicly on the issue.
Some providers, such as Scottish Widows, are convinced that the FSA will consult widely on the issue and that opportunities exist for everyone to make their voices heard.
6: What research has been done to gauge public understanding of the current regime and how quickly they will under stand the new set-up?
The London Economics' rep ort to the FSA found around 80 per cent of consumers currently understand what type of adviser they are seeing.
Many in the industry, however, are not aware of any research into how quickly the new set-up will be understood by the public.
It is acknowledged that building up consumer knowledge takes time.
Standard Life general manager sales Fielim Mackle says: “I have not seen many figures around this. It is un safe to assume what custo mer, IFA and provider behaviour will be after these changes. Perhaps we should be asking if the new regime will be any clearer.”
7: Will a change in the regime risk increasing the incidence of misselling and misbuying and, if so, by how much?
Many people in the industry believe the changes being suggested will lead to consumer confusion, which opens the door to misselling and misbuying. It is felt the changes will leave the issue of responsibility over poor advice open to dispute leaving the consumer, IFA and pro vider at risk.
Some life offices believe there are adequate controls in place to ensure that best and objective advice is given. Not many in the industry would risk another pension review.
But Standard Life believes there is a definite risk associa-ted with the proposed changes.
A DBS spokeswoman Sue Lewis says: “It is impossible to quantify at this stage but we do believe the changes will lead to consumer confusion. Inevitably, you will get some multi-tied advisers masquer ading as IFAs when they are not.”
8: Who is ultimately responsible for the decision at the FSA and the Treasury?
The industry seems genuinely unsure as to who has the final call on polarisation despite the alleged openness of the new regulatory environment.
Some players think it is the Treasury who is responsible, which, strictly speaking, it is, while others believe Davies, as boss of the FSA, makes the decision. Several IFAs simply do not know, which is perhaps most indicative since they are the ones most directly aff ected by the decision.
Skandia group marketing director Bill West says: “This is a political decision motivated by a desire to reduce the perceived 'social exclusion' in the financial services market.”
9. Is this decision being taken purely on economic grounds, as the London Economics' report suggests, or is the consumer interest to be taken into account?
The FSA and Treasury have expressed their commitment throughout that any changes made to polarisation are done because of the consumer interest.
The industry seems sceptical that this is the case. One of the most common complaints is that the London Economics' report did not take into account consumer interest at all.
IFA Holden Meehan adv iser Dan Kemp says: “The reason behind this decision is a mystery as it offers less protection to the consumer and there is already a great deal of competition in the IFA sector. An insurance company cannot claim that the market is uncompetitive if they are only able to sell their own products. A Ford garage does not claim the car market is uncompetitive if they are only able to sell Ford cars.”
10: What damage will the options for change that is, multi-ties, multi-product ties, gap-filling or white labelling, and depolarising Catmarked or kitemarked products do to the IFA sector over the next five to 10 years?
IFAs do not seem worried about the potential for damage to their industry. They are confident the services they offer in the way of truly independent advice is something that will endure as it has in the past.
Some providers do not share their bravado. Virgin Direct expresses concern that the IFA sector will dramatically change if this goes through.
Communications manager Andrew Stro nach says: “There are pro found issues at stake for the IFA sector. Multi-ties may well lead to consolidation.
“IFAs may have to choose between being truly independent, moving away from product panels and charging fees, or adopt the multi-tie model.”