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Trying to make sense of all the changes

Is it just me who is confused by the FSA proposals on polarisation and IFA commission?

Now, Let&#39s see if I have got this right. The FSA take over from the PIA and they decide that they want to make financial advice more accessible for the general public. They also want the cost of that advice to be more transparent for the consumer. So, first they take a look at an existing regime called polarisation, where tied advisers and independent financial advisers are clearly separated and easily identifiable to a consumer.

They decide that the best way to make that system clearer is to allow the tied advisers to sell the products of other companies, so that they become multi-tied financial advisers but not quite independent financial advisers, of course.

Then the FSA takes a look at how independent financial advisers are paid. They are a bit worried that IFAs are guilty of commission bias so they spend loads of money on comm-issioning (no pun intended) Cap Gemini Ernst & Young to do some consumer research for them. They come back to the FSA with a report which says there “is no correlation between the placement of significant volumes of business and higher than average commission rates”.

In response to this detailed and costly research from such a respected body of men, the FSA decide that it was all rubbish and that it would be a good idea to ban commission payments to IFAs in order to prevent commission bias. So that would be the commission bias that Cap Gemini Ernst & Young say does not exist then, would it?

Anyway, the good old caring, sharing FSA suddenly realise that, as a result of this change, loads of IFAs who presently receive commission as their main source of income will probably go bust in the transition to a fee-based practice. So, they come up with a cunning plan.

What the cash-strapped IFAs must do is ask their local friendly product provider to loan them a rather large wedge of folding stuff to bail them out. In return, the FSA will abolish the better than best rules, which previously stopped an IFA with a financial link to a product provider from selling that company&#39s products.

Right. I think I&#39ve got it now. Tied advisers who used to work for just one insurance company can now sell lots of different insurance company&#39s products and to keep my independent status, I can now sell the products of a single insurance company that pays me a large sum of money to keep my business afloat.

Goodness me, it must be great to be a member of the committee who came up with that one. So many problems to solve, so little time…

Nick Plumb

Senior IFA,

Legacies Asset Management,

Brentwood, Essex

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