The FSA's changes to the ‘polarisation’ regime have been keenly anticipated for at least two years. It was thought that any reform would bring an end to the requirement for advisers to state their independence from the insurance companies whose products they sell.
The proposals for the new regime have been published today for a three month consultation period and the final decisions are now expected in the summer.
Howard Davies, chairman of the FSA, said: "This is a significant liberalisation package to enhance consumer choice by breaking the shackles that polarisation puts on competition and innovation.
"Our aim is to secure long-term improvements for consumers through greater access to advice and greater choice in the financial products available to them.
"The extensive research we have carried out as part of this review demonstrates that the regime we inherited now represents a major market distortion and has simply not delivered sufficient consumer benefits to justify maintaining it. So we propose that it should be abolished, and new enhanced disclosures should be introduced to ensure that consumers are clear about the different types of adviser available to them."
The main proposals are that the existing ‘polarisation’ regime for financial advice should be removed; those firms purporting to be independent advisers will need to operate only on a defined payment system to remove the potential for commission bias; the rules limiting investment in firms of independent advisers should be removed, and consumer awareness measures and disclosure obligations on firms should be used to help make sure that consumers understand the different advice services from different types of firms.
The move has been greeted with dismay by the Association of Independent Financial Advisers. Lord Hunt, chairman of the Association of Independent Financial Advisers (AIFA), said: "It is extraordinary that the FSA is proposing to remove a cornerstone of consumer protection to solve the problem that tied agents can only offer a limited range of products. A simple system is being replaced by a free-for-all and the FSA admits it does not know what the future shape of the market will look like.
"Instead of building on what polarisation has achieved, the FSA's proposals to dismantle the strict polarised environment will send the industry into a serious bout of reorganisation and chaos, as providers look to form new relationships with advisers. How will this be beneficial to the consumer? The FSA's own research shows that most consumers perceive independent advice as the best. But they have come up with proposals which by their own admission could reduce the number of independent advisers. This is totally illogical.
"The FSA document is strangely silent on how it will ensure that the new freedoms it is giving to tied advisers are not abused. Surely the FSA has not forgotten that it was amongst the tied sector that there has been the greatest evidence of mis-selling. How will they ensure that depolarisation is not a prelude to a further round of mis-selling?
"The FSA is regrettably much more focused on the operation of the IFA sector than on how tied agents will operate. This leaves their proposals half-baked. Much more needs to be done to bolster the value of independent advice.
"IFAs have secured their present position of market dominance because of the qualities of the advice and service which they offer, not because of the rules under which the market operates. So they will not rush into changing their status unless the FSA's attempts at reform cease to make independent advice viable.
"On a positive note, the ability of providers to invest in the independent channel is being made significantly easier. This is something on which the whole industry should reflect."
