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Abolition of polarisation will allow better choice of products

  • 03/12/2002
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The Financial Services Auth- ority (FSA) is to it proceed with the abolition of the polarisation reg...

The Financial Services Auth- ority (FSA) is to it proceed with the abolition of the polarisation regime, following consultation on CP121.

Firms currently restricted to selling just one company’s products to customers will be able to offer from a range of companies. Independent firms can continue, provided they both advise from across the market and offer their customers the option to pay by fee.

The FSA will not adopt the ‘defined payment system’, on which it consulted in CP121, but will develop the ‘menu’ approach, which emerged dur- ing the consultation period. The FSA will publish consultation draft rules on the ‘menu’ as early as possible in 2003.

The regulator, recognising the public’s need to understand the nature of advice and service being offered by firms will implement an initial disclosure document. Lord Hunt, chairman of the Association of IFAs, said: ‘Currently, advisers are clearly divided into two categories, tied or independent. Now there will be advisers who are tied to, or have contractual arrangements with, as many product providers as they wish. A robust status disclosure regime needs to be put in place so that consumers are clear about the nature of the advice they are receiving.’

The ‘better-than-best’ rule, preventing an independent intermediary recommending a product from any provider owning 10% or more of the firm, will be abolished. Abolition means independent firms will be able to attract investment to increase their financial strength. There will be safeguards to ensure that such investment does not undermine the independence of a firm.

Charles Ansdell, corporate relations manager at IFA Inter Alliance, while pleased independent advice will continue and seeing a menu system as sensible, thought the end of the ‘better-than-best’ rule spelt the end for many smaller IFAs. ‘The burden of regulation plus the altering of rules that will allow the larger IFA firms to attract investment, make it difficult for small IFAs to survive,’ he said.

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