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Things aren&#39t always what they seem

April 15, 1967, Wembley: England 2 Scotland 3. Life is full of surprises.

CP121 certainly contained a few. Now we are over the initial reaction phase, advisers and providers alike are sitting down trying to work out how they can be successful in the new world. The biggest surprise of all could be how wrong our initial assumptions about that new world turn out to be.

Conversations we had with policymakers before Christmas led us to expect something bold from the FSA – it certainly lived up to that billing.

As expected, there was a chorus of protest over the abolition of polarisation, not least because it fails to address the £27bn UK savings gap.

Having said that, the FSA has started to tackle the issue of improving access to advice. We should applaud the FSA and the Treasury for trying to link their work in a consistent fashion.

IFAs can take pride in the fact that policymakers now accept the importance of advice and that regulation makes advice too expensive for many consumers.

Many IFAs fear that abolition of polarisation will reverse the gains they have made since its introduction. But polarisation was never intended to revitalise the independent sector.

In 1987, the OFT warned against polarisation on the grounds that it would sound the death knell for independent advice. Like Scotland beating mighty World Cup champions England, things often do not turn out the way you expect. So, the question on everyone&#39s lips now is whether this time the bell really is tolling for independent advice.

One possible scenario starts with a feeding frenzy as pro-viders try to secure distribution. Judging by the number of calls we have had from IFAs, this may be the consensus of current opinion.

Having said that, providers will want to ensure that any capital they part with is invested in the business. It would be all too easy for an IFA to walk away with the two things that are really of value – his or her own skills and the customer base.

Add to that the worries that big providers may have over taking on compliance responsibilities as a result of a purchase and possibly the frenzy will not happen after all.

Instead, perhaps, the only thing that will change will be that panel selection becomes a little more formalised. IFAs will be able to carry on making independent choices to the benefit of their clients although they will not be able to use the term “independent”.

We could see another term, say, chartered financial adviser or CFA, take over from IFA as the must-have label. Paul Smee will be director general of the ACFA and not a lot will have changed.

As we explore the low-cost advice model further, this latter scenario begins to look even more attractive.

Imagine a world where a new generation of “safe haven” products can be sold both by fully qualified advisers and by a new type of saver agent.

The saver agent&#39s role is to persuade people to pay off their debt and then to start saving where appropriate rather than to provide comprehensive financial planning.

IFA (or CFA) firms could use this as a way to bring in new customers and to develop staff into full advisers. As they are not tied to one provider, they can select the “best of the safest” products for customers. It may be that the real winners from a low-cost advice model will be IFAs. And their customers, of course.

Modelling done by Oliver, Wyman & Company for the Future of Regulation study, showed that the eventual shape of the market depends critically on the relative economics of multi-ties and IFAs.

In particular, the burden of increased regulation over the last 10 years has been in opportunity cost rather than in direct costs – time spent doing paperwork instead of meeting clients.

CP121 probably gives us enough information to start to understand the shape of the market after abolition and we believe abolition is likely to go ahead in the form presented, protests or not.

The challenge for both advisers and providers, therefore, is to get the strategy straight before the new world is implemented and then, like Jim Baxter&#39s ball juggling at Wembley in 1967, to make the most of it.


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