The new regulations, detailed in today's policy statement, remove the artificial restrictions of the old system of 'polarisation', increasing the range of products available to consumers as well as giving them a clearer picture of what they are paying for advice.
Advisers can currently offer 'independent' or 'tied' advice. Independent advisers offer products from the whole of the market whilst 'tied' advisers are limited to the products of only one provider. Following removal of the polarisation restrictions it will be possible for firms to offer advice from the whole of the market, from a limited number of providers, or a single provider. The FSA expects this to result in more choice for consumers as firms that previously only offered advice on the products of a single provider will be able, if they wish, to expand their range of products.
Dan Waters, FSA Director of Retail Policy, said:
"This is a groundbreaking initiative which will encourage competition and innovation. The majority of customers use tied advisers, from branches of high street banks and building societies for example, and they can now be offered a wider range of products from a variety of providers. Essentially consumers will have a far greater choice."
Consumers will also get much clearer information about the service their adviser offers and for the first time will receive an indication upfront of the costs of these services. This information will be given through two 'keyfacts' documents. The first document, 'keyfacts about our services', will tell the consumer about the type of advice and the range of products on offer. The second, 'keyfacts about the costs of our services', will tell the consumer about the different payment options on offer (commission or fee), give an induction of what these costs will be, and provide information on how the commission cost compares to the market average commission for each product.
Dan Waters said:
"The 'keyfacts' documents will give customers a greater understanding of the different payment options and advice costs amongst financial advice firms. Customers will be able to compare these to costs offered by other advisers and see how their commission rates compare to the market average."We believe this new knowledge and visibility on how advisers work will give the consumer more confidence when buying financial products. By providing this information at the start of the advice process, it will be easier for consumers to shop around in order to get the best value for money."
The depolarisation rules will be implemented over a 6 month transitional period, beginning on December 1st. During this time firms may either continue to be regulated under the present rules, or notify the FSA that they wish to adopt the new rules. If they chose the latter option they will have to be able to comply immediately with all of the new rules, including the requirements to provide customers with the 'keyfacts' documents.
At the end of the six month period, on 1 June 2005, all firms will need to be compliant with new rules, and the depolarisation process will be complete.
Background
- Policy Statement 04/27 Reforming Polarisation: Implementation is available on the FSA website.
- The FSA has developed a 'keyfacts' brand and logo to draw customers' attention to certain documents containing important information that they should read. Documents carrying the logo will present essential information in a concise, jargon-free way, enabling consumers to recognise the important factors they should think about before buying investment products and services.
- At present, financial advisers are required to comply with the polarisation rules that came into effect in 1988. These restrictions control the way that some savings and investments can be sold and require advisers on packaged products to be either:
- independent (IFA) and advise across all products and companies on the market; or
- tied and represent just one company and sell only its products.
The depolarisation reforms are mainly concerned with the removal of these restrictions and increasing the range of products that advisers can sell. These proposals should result in increased choice for both consumers, in the products available to them, and firms, in the ways they can do business. Improved disclosure will have an important role in the new regime. We expect to publish our final Policy Statement very shortly with rules to come into effect from 1 December 2004.
- 'Keyfacts: about the cost of our services', also known in the industry as the 'menu', is an integral part of the depolarisation package and will be introduced alongside the depolarisation reforms. We intend to update the market average figures annually. Full details of how these figures should be introduced and used will be contained in the forthcoming Policy Statement.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
