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Polarisation reform – don&#39t panic

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&#39s

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

customer service.

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&#39s 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

ineffective competition.

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 latter.

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

polarisation reforms.

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&#39s 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.


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