As an industry, we should see the move to reform polarisation as an opportunity for everyone. This should be the beginning of simplification for the whole industry.
We must understand what the Government is trying to achieve – an environment where individuals accept responsibility for their own long-term financial provision, starting with stakeholder.
The Government wants to promote the sale of financial services products and has discovered a piece of regulation that it thinks acts as a barrier to achieving this. So rather than shy away from change, we should welcome it.
The Government recognises that, to do our job properly, it needs to roll back unnecessary regulation. I think this is the first chink of light I have seen in financial services regulation in years and one we should applaud. All this industry has seen over the past few years has been increasing regulation but this could be the swing of the pendulum the other way.
I believe there is something for everyone in the new environment and there is no point trying to oppose this. Fighting change is just putting your head in the sand.
IFAs have nothing to fear from change. The Office of Fair Trading, the FSA and London Economics have queued up to praise IFAs and the effect they have had on competition. Consultation paper 80 does not mention the word IFA once (nor does it mention multi-ties). Whatever the changes to the tied sector, the IFA sector will remain the same.
Why? Because whatever the changes to the rules, the market will remain polarised.
IFAs and IFA providers will generally stick with the IFA channel because many consumers genuinely want independent advice. That was proved by consumer research done for the LE report.
Tied providers will generally stick to the tied channel because they want to deliver a quality product and advice service. They may use gap-filling to include low-margin products such as stakeholder in their range and to incorporate innovative products where the market is still small and does not support many providers.
This is exactly what Allied Dunbar has done with the PPP long-term care product. But no tied company is going to allow agents to sell whatever they like because that would not be as profitable and would be a nightmare to monitor.
Finally, tied advisers will generally remain tied because of brand strength, training and service. Furthermore, the provider takes responsibility for compliance and redress. If they effectively became multi-tied, they would have to be directly authorised by the FSA – which can amount to about £1,800 for a sole trader and much more for a bigger firm – and take responsibility for training, compliance and redress.
By the time they have done all this, they might as well become an IFA and take the credit for being independent.
So the effects of change on distribution will be very small. Some people are covering their ears expecting a huge explosion when the polarisation rules change. They will be surprised when all they hear is a little pop.
Too often in the past, the industry has resisted change tooth and nail. The result has been that Government and consumers have seen it as unimaginative and reactionary. We should go forward and work constructively with the FSA to make sure its simplification of the industry does not stop here.
We have to ensure the FSA's reviews of status and product disclosure produce real results. I do not want to see consumers faced with huge piles of papers they are never going to read. Call that consumer protection? We also have to make sure that regulation is designed to meet consumers' needs, like the need for advice. Yes, they do need advice.
At the moment, we are in danger of banning all but the cheapest products and whoever said cheap is best?
Quite simply, we need to reduce the regulation hampering the financial services industry so we can present a clearer proposition to consumers. Getting the detail right now will ensure we have the right foundations on which to build. These initial changes can only be a step towards the new regime. On their own, they do not go far enough.
The whole status disclosure regime needs to be overhauled if the FSA is changing the polarisation rules.
These are the kind of things the industry should be thinking about and it should go to the FSA with its solutions now because no one understands the market better than the industry.