No longer polarised

The Financial Services Authority has persuaded the Government that the 1988 polarisation rules which clearly distinguish independent financial advisers from tied agents, who may only sell the products (life insurance, personal pensions and unit trusts) of one organisation, should be revised in order “to facilitate greater innovation.” A report to the Treasury by the Director General of Fair Trading (DGFT) in August 1999 concluded that the polarisation rules of the self-regulatory organisations (notably PIA and IMRO) served to constrain or distort competition. However, that DGFT also said that in the case of life assurance and personal pensions, their negative consequences were more than offset by the protection that they afforded retail investors. The FSA responded by commissioning its own study of polarisation by London Economics. LE broadly supported the DGFT’s anti-competitiveness findings. It examined a number of options: the introduction of multi-tied agents; excluding unit trusts from the polarisation regime; exemption from the polarisation rules of products which are subject to minimum standards (stakeholder pensions and CAT-marked ISAs); and “gap-filling” which would permit a firm to supply others’ products if it does not offer any of its own in the same class.