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Real battle lies in phase two

The FSA has issued details of the first phase of its consultation exercise on proposed changes to the polarisation regime.

The deadline for contributing to the debate is February 16 despite the regulator and the Treasury already indicating its desire to wind up polarisation for stakeholder, Catmarked Isas and direct-offer products.

The FSA optimistically hopes to finish the consultation exercise and implement any changes in advance of the launch of stakeholder at the start of April.

The changes it proposes are to allow providers to offer other firms&#39 stakeholder or Catmarked Isa products.

The FSA expects most providers which choose to make changes to add only minimal numbers of additional products bec ause of the extra compliance and admin burdens it would cause.

The FSA has watered down the original Treasury proposals, refusing to allow franchisees, tied agents or even IFAs to multi-tie themselves to a handful of prov iders for the purpose of selling stakeholders or Catmarked Isas under phase one.

In a chapter of the FSA&#39s paper entitled, The Way Ahead, it says: “The regulatory environment has chan ged substantially since pol arisation was introduced. Polarisation was necessary at a time when the status of advisers was often unclear and there was a lack of transparency about commission. In the FSA&#39s view, polarisation is too blunt an instrument to best serve the interests of consumer protection.”

IFAs and the industry have resigned themselves to losing round one in the battle to save polarisation. Given the FSA&#39s determination to scrap it for stakeholder and Cat marked Isas, there seems little that can be done to change its mind.

Head of business (policy) David Severn concedes it is unlikely anyone will come up with a convincing argument at this stage that would compel the FSA to change its mind.

The push to remove direct-offer ads from the polarisation spectrum comes from the inc reasing prominence of fund supermarkets.

The FSA believes supermarkets can only fall foul of polarisation rules but that there is little point in enforcing the present regime as it stands at present.

Severn says: “Those products with no advice provided will be removed from polarisation across the board.”

The second phase of the consultation will start in July and this is where the real battle will be fought as any further move would effectively mean an end to polarisation.

Severn says: “Phase two will be more difficult and far more controversial.”

Along with this, the FSA is conducting a full-scale review of both product and status disclosure.

The regulator wants to discover to what extent consumers understand the status of their adviser and of the product they are investing in.

This will go hand in hand with further moves away from polarisation.

By the time April and stakeholder arrives, or at the latest when the legislation for N2 and the FSA is finally passed, providers will be allowed to offer other stakeholder and Catmarked Isas in their line of products.


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