The FSA laid its depolarisation cards on the table with consultation paper 121, the main recommendation being the introduction of multi-ties, striking fear into the hearts of many. Its original overall proposals included creating five levels of advice, the abolition of the better than best rules, new disclosure rules and a defined-payment system. This was not welcome news to many and opponents claimed the change would lead to “dilution and shrinkage” of the IF A brand, while eroding the consumers’ ability to get impartial advice.
One of the biggest battles was the fight over the proposed defined-payment regime. It was Aifa and then director general Paul Smee who spearheaded the attack and Money Marketing pronounced IFAs the victor in late October when the FSA agreed to drop its plans in favour of Aifa’s menu system.
2002 was also the year of the distribution dash, with Aegon particularly hungry to swallow IFA firms whole. Hitting the front page first was Norwich Union and Friends Provident who together took a 20 per cent stake in the Tenet Group, both paying £9.5m. Then in June Aegon, Friends Provident, Norwich Union, Scottish Widows and Skandia paid £2.4m each for newly issued shares in Millfield. Another £5.2m came from other investors giving an 18 per cent stake to the group in total.
In the same week, Aegon “swooped” on Wentworth Rose, taking a 50 per cent share in it, with an exclusive option for further shares. It took up that option in 2004 to take over complete control of the company. But Aegon did not stop there and in August 2002 it had acquired 100 per cent of Advisory & Brokerage Services and was still on the hunt. The following week it bought national corporate IFA Momentum and in November took a 60 per cent stake in Positive Solutions and a 9.2 per cent stake in national IF A group Lighthouse.
But mergers and acquisitions were not just restricted to Aegon’s appetite for IFA firms. Misys revealed in December that it planned to carry out a “mega merger” of its five networks to create a single mega network, known today as Sesame.
The bear market hit home, with Scottish Widows becoming the first provider to slashes with-profits bonuses. Other providers were soon to follow.
The bumpy ride for with-profits continued with the FSA “sounding the death knell” for the with-profits name in June. This came after the head of the with-profits review team Eleanor Linton described the term as a misnomer and questioned its future.
Hargreaves Lansdown was criticised in July when it put sales of with-profits products on hold for fear that any money going into funds would be used to repair “ravaged” funds if markets improved, or otherwise face little in the way of bonuses.
As desperation grew with-profits providers were soon accused of cutting payouts “by stealth” with market value reduc¬tions coming into play.
The turbulence of the markets carried through to the asset management sector, where there seemed to be a revolving door for fund managers. In April ABN Amro lost its star fund managers George Luckraft and Nigel Thomas who quit to join Framlington’s UK equity team. And UBS Global Asset Management had to rethink its plans for entering the UK retail market after SG Asset Management poached its two managers, Hugh Sergeant and Hari Sandhu, who were set to run its flagship funds. Then Lazard UK smaller companies manager Richard Smith left for Invesco Perpetual’s UK team.
It was not long before Edinburgh Fund Managers’ then managing director Harry Morgan was calling for a stop to the “manager merry-go-round” which he said was bringing the industry into disrepute.
Other significant moves in the sector included Friends Ivory & Sime’s takeover of Royal & Sun Alliance’s fund management business for £240m, putting it in the top 10 active fund managers in the UK and the merger of Artemis and ABN Amro.
July was spent digesting the two big reviews of the day, Ron Sandler’s review of Medium and Long-Term Retail Savings in the UK and Alan Pickering’s A Simpler Way to Better Pensions.
The year saw LIA chief executive Jeff Travis resign after leading the trade body for six years, while DBS founder and chairman Ken Davy stepped down after 20 years. Meanwhile, Keith Carby was appointed chief executive of Inter-Alliance.
Chris Fishwick, then head of investment trusts at Aberdeen Asset Management and credited with being one of the architects of the split-capital investment trust sector, also left his post. His resignation came days after the FSA formalised its investigation into whether fund managers colluded to prop up share prices in the split-cap sector.
The pensions sector repeatedly made headlines in 2002, with experts fearing that the Department for Work and Pensions’ planned combined benefit statements were likely to shock money-purchase policyholders with pension benefits of up to 60 per cent less than expected.
In February the Inland Revenue claimed a complex monopoly was at work among retirement product providers, distorting competition and damaging consumer interest.
Then in May the FSA announced it was to carry out a review of income-draw down businesses to look at the possibility of commission bias and whether draw down should become a permitted activity. Meanwhile, the Revenue announced it planned to audit self-invested personal pensions as part of a crackdown on investments potentially breaching its rules.
The Government’s Christmas present to the industry came in the form of its proposals for pension simplification. The Inland Revenue’s consultation document was hailed as revolutionary. Scottish Life head of pension strategy Steve Bee described it as the “most positive simplification in four decades”.
Little did the industry know that three years later it would still be working towards the long-awaited A-Day.