Who would you most like to have a one to one with? Certainly, if the evidence of the last few weeks is anything to go by, not with the FSA's David Severn, author of the innocuously titled CP121.
The FSA's consultation paper has certainly come as a bit of a bombshell to the industry, particularly the IFA community. In retrospect, many took too much comfort from the modest noises the FSA made at its open meeting on polarisation last year, the last time indications were made on how it was thinking.
But the FSA also went to some lengths to explain this was a work in progress. My understanding is that the FSA approached this issue with a genuine open mind. It went first in one direction and then in another and I suspect that a firm view was reached only in the last stages.
It is crucial to understand the context in which its decision has been taken. The Treasury is not a sleeping partner in all this. What the FSA decides to do with polarisation will affect the direction of the Sandler review and also affect the overall long-term strategy the Government has for financial services. The FSA cannot (the consultation process is still ongoing) be allowed to reach the “wrong” decision.
So, polarisation is dead or dying. It has taken a long, long time. The review began in the last century. I am tempted to set a mini pub quiz. When was the first review of polarisation and who initiated it? As far as I can work out, it was in August 1998, initiated by the then director-general of fair trading John Bridgeman. Reporting a year later in August 1999, his recommendation was to keep polarisation but to introduce multi-ties.
The FSA was asked to look at polarisation and began consulting in February 2000. The Treasury also had a statutory duty to formally consider the OFT report. However, it spun the line that it would be guided by the FSA. Actually, in reality, the reverse was probably the case.
Those who took part in the polarisation debate had a variety of views. Sir Mark Weinberg made a magisterial speech in November 1998 which contained, as far as I am concerned, the clearest and most helpful exposition on the history of polarisation and what it means in practice.
Weinberg at the time called for a combination of multi-ties and fee-based advice, anticipating the FSA's proposals by over three years.
So the wheels ground on until today. Do not forget that the process is not over. In theory, Ron Sandler may have a view and, given that his consultation finishes in April, we may not get the final proposals until the summer.
But the writing is on the wall and the financial services industry must decide how to live in a post-polarisation world. The IFA community has reacted with horror to the proposals. Yet, if IFAs pause for thought, the glass is half full, not half empty.
One view is that all the proposed changes do is remove the shroud that obscures current practice. IFAs working on a commission basis are effectively already multi-tied and those paid fees are (unquestionably and logically) independent.
Will becoming multi-tied make much difference to the commission-based IFA who does not think he can successfully move to fees? I doubt it. Most of his clients simply trust him to give them decent advice without really believing that advice is independent.
Will the earnings of these IFAs be affected? I doubt it. Product providers will pay similar levels of commission to those paid previously to IFAs.
Will there be other benefits? Yes, I think there will be. For example, there will be no need to prove that a recommendation is truly the best the market has to offer, so the regulatory burden will be lighter.
In addition, it must be better for consumers to understand the true cost of the advice they are getting. There is no doubt at all that “proposals for unbundling the cost of advice or marketing from the cost of the product” mean that multi-ties will be forced to disclose commission levels in some form of Cat standard.
But what about those IFAs who really believe in independence? Their challenge is to move to fees if they are not there already. They will have to raise their game and establish a more professional outlook and think of advice as simply a product they are selling.
Just as it is more time-consuming to sell to an individual than to a company, so IFAs like this will have a mixed target market to absorb their marketing costs.
It will be in the interests of independent financial advisers to prove their advice is “better” than that offered by multi-tied advisers, while multi-tied advisers will try to show that there is no added value in getting bespoke advice.
Product providers will also re-evaluate their approach. Some will buy IFA firms for a ready-made distribution channel. Others will drop poor products that they have created simply to provide their customers with a complete service and buy in the best from other companies as part of a multi-tie.
There is a great deal more to be said in this great post-polarisation debate. Objectively, change must be a good thing in our view. Polarisation restricted competition and regulated the market in an artificial way.
The provision of intelligent financial advice is still a skill that people will pay for and it is up to a free market to decide which is the best way for them to pay. Roll on the brave new world.
Edward Vaizey is director of public affairs at Consolidated Communications