The Financial Services Authority Board last week announced its decision to proceed with the abolition of the polarisation regime, on which it consulted in consultation paper CP121.
In future firms advising on packaged product business will be able to offer their customers a greater choice of product and from as many providers as they wish.
Announcing the decision at the annual dinner of the Association of Independent Financial Advisers (on November 21) FSA Chairman Howard Davies says: “The polarisation rule has not delivered the consumer benefits hoped for when it was introduced. We are convinced that a freer market will help consumers more.
In future, consumers will find it easier to shop around for the best product and providers will be free of the anti-competitive constraints that have made it difficult for them to offer consumers that choice.”
As a result of the decisions:
* firms currently restricted to selling just one company's products to customers will in future be able to offer their customers more choice;
* firms who wish to continue to hold themselves out as 'independent' can do so provided they both advise from across the market and offer their customers the option to pay by fee;
* abolition of the polarisation regime means that consumers will need to understand the exact nature of the advice being given and the service being offered by the firms with which they are dealing. This will be achieved through a new initial disclosure document;
* the so-called “better-than-best” rule will be abolished. This rule effectively prevents an independent intermediary firm from recommending a product from any provider which owns 10% or more of the firm. Abolition of the rule will mean that independent firms will be able to attract investment to increase their financial strength. There will be safeguards in place to ensure that such investment does not undermine the independence of a firm; and
* we will continue with the present requirement that appointed representatives must, for investment business purposes, have a single principal. This is to secure clear lines of accountability and responsibility for an appointed representative's advice. However, for those appointed representatives who do no more than 'introduce' customers to an authorised firm we are scrapping the single principal rule.
The FSA will be consulting on draft rules to give effect to its decisions in January. Prior to rules being implemented it will also mount a public awareness campaign to help consumers understand how the changes will affect them.
Norwich Union has welcomed the FSA's decision. Peter Hales, sales and marketing director for Norwich Union, says: “This is a major development for the industry and a significant opportunity for opening up the market for advice to more consumers. It also presents a real opportunity for IFAs to continue to develop and prosper. Norwich Union are delighted to have had an opportunity to have been actively involved in the consultation process.”
Abbey National has also welcomes the announcement. Ambrose McGinn, director sales and marketing, Abbey National for Intermediaries said: “Abbey National for Intermediaries was created earlier this year in anticipation of these changes and we welcome and support the move. The new regime will give more choice and freedom to a whole range of providers and intermediaries whilst ensuring that customers get the best deal possible. The title Independent Financial Adviser will mean exactly what it states and that can only be beneficial to our industry”.
But the Consumers' Association has expressed deep concern. Allan Asher, director, campaigns and communications, says: “We are disappointed by aspects of the decision, which will only serve the interest of the major banks and insurers and not the millions of us that need a fair and affordable system of advice. By allowing banks and insurance companies to purchase IFA's, where the primary obligation is the needs of the consumer, the future of impartial advice looks bleak.”