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The first year report card

Has the huge shake-up of depolarisation just been a big non-event and how is the FSA planning to measure the effect of the changes? Philip Scott looks at the financial services industry 12 months after the big switch

Twelve months ago, depolarisation arrived.

What both these events have in common is that despite the hype and controversy which preceded them, they are now both being viewed, in critical terms at least, as something of a non-event.

Informed Choice director Martin Bamford says little has happened since depolarisation and it has had “very little impact on how advice is given”. He adds: “The only people I can see talking about it are networks and providers who see it as a business opportunity.”

This is a sentiment shared by Association of Independent Advisers deputy director Fay Goddard.

She says: “Depolarisation has been a big non-event. We have surveyed our members twice since its onset, in August and November last year. The trend we have seen developing is that the majority of advisers still want their independent status. Some are looking at whole of market but as far as we can see there has been minimal adoption of multi-ties, certainly from the market knowledge we have. Barclays did set up a multi-tie option but the big moves from the big banks have not really happened.”

For Goddard the real question is – has anyone benefited from depolarisation? She says: “We have yet to see any evidence that the operation has been a success.”

Aifa has been pressing for a review of the depolarised market but will have to wait another 12 months before it sees any results as the FSA is waiting until June 2007 before it make an evaluation.

FSA spokeswoman Samantha Bennett says the regulator set out to establish improved consumer understanding and empowerment, better competition in the advice market and more choice of products for consumers.

A year in, the market is beginning to shift but this is a fairly recent phenomenon, according to Sesame head of strategic propositions and commercial development Alastair Conway, saying he feels that now most advisers are starting to recognise how to operate in a depolarised market.

He says: “More mortgage advisers, who would have used a panel proposition have since moved into a multi-tie model which seems to suit them better.”

Conway notes that another group are those brand of imaginative intermediaries who recognise the market has switched and want to get a strategic advantage over others so have moved to multi-tie model to offer better deals to the consumer.

Conway says: “In the past few weeks, I have noticed more mainstream advisers develop closer working relationships with a few providers, so some maybe planning to move to a multi-tie offering or, indeed, some hybrid of multi-tie.”

Threesixty services partner David Ingram feels that advisers have taken to depolarisation quite well, noting that the payment menu has been integrated into the sales process but, at the root of it all, he has not seen the fundamental change which was originally expected.

He says: “The menu has added to cost bases but it does not seem to have had an impact on sales which are up in the first quarter of 2006. As far as multi-ties have gone, there has been little impact . Multi-ties reduce choice. We feel whole of market is a much more attractive an option.”

But the menu system is seen by many as a source of confusion. Ingram does not see how it can bring any clarity for consumers.

Bamford says: “My chief concern is that the FSA are not formally categorising the routes of advice between tied, multi-tied, IFA and whole-of-market so from a consumer perspective there can be a lot of confusion over what type of business they are actually dealing with.”

Ingram believes that more education is required from the regulator. He says: “I do not think the FSA is doing enough to support the consumer to explain what type of advisers are what.”

Conway says the issue falls into the “confused” category. He says: “Multi-tie can describe a whole variety of models and is not accurately described – we need to change definitions.”

IFA Promotion chief executive David Elms says that the menu is overly complicated.

Just before depolarisation, FSA director of retail policy Dan Waters said: “These key facts documents will make it clearer to consumers that even when financed through commission, that advice comes at a cost and it is consumers who ultimately pay through the charges levied on products they buy.

“In line with our aim to help consumers achieve a fair deal, we expect this to result in more competitive pressure being brought to bear on commission levels and a need for firms to explain more clearly the services they provide.”

But Elms says: “Any document which describes itself as key facts and is over a page long is a misdescription. But on the other hand, the menu is playing a central role in reputation – in what it is trying to achieve.”

On the plus side, Elms says 18 per cent of people contacting IFAP since depolarisation are asking for fee-only advice.

Over the past 12 months, Elms says the number of IFA branch addresses – by IFAP’s definition, to be truly independent, a branch must have an investment adviser present – has increased from 8,100 to 8,900.

He adds: “We have gone over the same period from 500,000 people using us to find an IFA to be on target this year for 550,000. Despite having a choice between a variety of adviser models, consumers want independent financial advice.”

Since depolarisation, Elms identifies four factors which all bode well for independent advice.

He says: “IFAs still want to be IFAs, consumers still want to receive independent financial advice, third parties are still referring consumers to us and the consumer media are still quoting IFAs as experts.”

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