In the media coverage of two recent major corporate deals, polarisation
reform was cited as an influencing factor. Of course, those involved will
have factored in the possible outcomes of polarisation reform, along with
many other considerations.
But should other IFAs be making decisions at this stage? This article
summarises the width of regulatory options going for- ward and suggests
that polarisation reform in itself should not lead to immediate action.
The review of polarisation centres on consumer issues. The outcome sho-uld
focus on removing existing areas of consumer detriment such as lack of
choice and ineffective competition, particularly outside the IFA channel.
There are a number of other reviews and initiatives currently under way
with similar aims meaning polarisation reform cannot be considered in
The other reviews
The FSA launches its comparative table service in September to provide
consumers with more information. Its reviews of point-of-sale disclosure
and post-sale service will also focus on improving consumer information.
The Treasury is considering extending Cat standards to a wider range of
financial service products as well as to the advice itself. The ABI's
Raising Standards initiative aims to improve consumer confidence in
financial services by improving clarity and comparability of information,
introducing new safeguards against inappropriate purchases and imp-roving
And taking over where Myners left off is the Sandler review into personal
investment. This has a very wide brief, including competition issues and
adviser incentives, so may well overlap with polarisation.
The possible outcomes
Following regulatory update 86, we no longer have complete polarisation.
The rules have been relaxed around direct-offer advertising and we have the
new concept of “gap-filling” under which a provider can “adopt” the
stakeholder pension product of another provider.
The tied distribution channel of the adopting provider can then sell the
stakeholder pension under the other (original) provider's brand or possibly
Gap-filling clearly delivers greater choice to customers of tied providers
and one possible outcome of the polarisation reforms might be to make this
more extensive. Limiting gap filling to Cat-standard products or promoting
the comparative table service might remove the second consumer detriment of
Another outcome, is some form of multi-tied adviser status. This could
take a number of shapes.
If distribution-led, we might see some IFAs voluntarily giving up their
true independent status to tie to a range of best of breed providers.
Issues here include the range of services providers offer, the division of
pro-vider/distributor responsibilities and any practical “lock-ins” these
Alternatively, might the FSA prefer to see provider led alliance activity
offering common services such as technology across the distribution
landscape, which in turn would reduce costs and ultimately create consumer
Whatever the outcome, there will still be the facility to be truly
independent, although this could come with new requirements.
There appears to be a regulatory preference for fees over commission
although I suspect that consumer research would highlight a preference for
The regulators also appear to frown on provider panels although in what
other industries does the consumer get access to the complete range of
providers without some initial screening by the distributor?
It is almost inevitable that we will see some further change under
The next consultation paper, expected around September, should tell us
more. But at this stage it is risky to prejudge the outcome and premature
to rush into irrevocable decisions. Is wider gap-filling all we need? Would
multi-ties actually be in the consumer's interest?
One certainty is there will be no requirement for IFAs to give up their
independent status. There will be plenty of time to give informed thought
to the future once the regulatory outcome is known.