FSA finally decides against polarisation

Under the current system, firms that are not independent financial advisers can sell only one company's products. The new regime, which is aimed at improving consumer protection, will mean that companies will be able to offer consumers a choice of products from a whole range of providers.

Announcing the decision yesterday at the annual dinner of the Association of Independent Financial Advisers (AIFA), FSA Chairman, Howard Davies said: “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 announced today:

• 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

• the FSA 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.