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Sting in the retail review

It never falls to amaze me when just before a major seismic shift in the retail financial services sector, we witness two networks being bought at a premium price.

I always have nervous thoughts when another party outbids the management buyout team and this is no exception.

Misys has been trying to sell Sesame for a long time, yet Friends Provident pays top dollar. So was everyone else wrong or is Friends on the ball this time? Somehow, I doubt that. This is the life company with five head office buildings in Dorking, Salisbury, Exeter, Portsmouth and Edinburgh.

The truth may not be obvious. After all, what better way of getting into a safer place than a major acquisition? The retail review will herald mergers and sometimes you are just not ready. Hence my comments.

I still consider that Manchester United sponsor AIG cannot be happy to stay out of the main market for the sale of products for ever. Should it make a move on any of the current list of providers, this would start a chain reaction and before you blink we will have no more than five players in life insurance.

The move to wraps will lubricate this process and if the regulator fails to keep up, then we could have the crazy situation of regulation for products, with IFAs not selling any.

Regulating advice is no easy task and not one the FSA has shown any appetite for – well, certainly not in the recent past.

To make matters worse, let us presume we get factory gate for all products. This will put pressure on the typical network member and the remaining margins may lead to a reduction in their number.

Before I go on, just what is factory gate pricing? I want all extraneous elements capable of being stripped out, not just commission. If I do not need a rep from a call centre, lose that cost.

Oh, and before it slips my mind, in this brave new world, just how will mystery shoppers deal with the fee-based planner who does not advise until a signed engagement letter is in their hand and, even worse, those of us who take deposits too?

Will the FSA need a budget to pay our fees or do we simply make their whole methodology redundant? If we all move to advice over products, just how can they possibly check us all?

That is when I realised just how exposed are those former network members who moved to direct regulation just before capital adequacy increased significantly. The regulator never envisaged regulating lots of small firms and yet it has been sleepwalking into that very environment since the time of Howard Davies.

When the review hits the streets, I know that many will find it hard to comprehend just how we got here and why treating customers fairly does not apply to the regulator and providers in their dealings with intermediaries.

As Gordon heads for Number 10 and with Alex in play in Edinburgh, much can and will change.

A key defining moment will be the report from Otto Thoresen. This will either make personal accounts impotent, if all options cannot deliver, or we will see whether the market has the ability to finally segment its offering.

We are heading for a reduction in numbers by design and not before time. Before you write in, I know I said that about Friends Provident’s acquisition of Sesame but the scary thing is it holds good in both situations.

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