Depolarisation is now unlikely to alter the IFA market, its labels and distribution processes, contrary to discussions when the FSA's first consultation on the issue surfaced, says Datamonitor.
A brief produced by the research group entitled Impact of Depolarisation on the UK Wealth Management Market reveals previous hype and worry about the introduction of depolarisation – following several consultation periods by the Financial Services Authority – is now likely to remain just that.
A significant shift has occurred between Consultation Paper 121 and the recent FSA consultation '04/03' which has moved depolarisation away from requiring IFAs to use a "Defined Payment System"” or fee-based advice back in January 2002 to handing over a piece of paper explaining what commissions could cost.
In particular, Alan Shields, senior analyst at Datamonitor and author behind the latest brief for private client advisers, wealth managers and product manufacturers believes intermediaries advising high net worth clients will rarely have to deal with explaining depolarisation to clients, as use of the menu is restricted to mass market products which such advisers are less likely to recommend.
The report on depolarisation was designed to outline FSA proposals for depolarisation on such groups as well as any opportunities or threats to their businesses.
But Datamonitor discussions with high net worth advice services suggests independent intermediaries or wealth managers will remain so while high net worth services offered by high street banks, such as HSBC’s Premier service, are likely to remain tied rather than become multi-tie advisers.
"Advisers at the lower end of the market might find it more efficient to become multi-tie advisers because they are already operating under panel schemes. But wealth managers are likely to remain independent – most already charge fees anyway – because this is what their clients want," says Shields.
He points out, for example, the definition or stance of depolarisation and its associated regulations has shifted - since the OFT first suggested commission-based advice was "anti-competitive" - from ADVICE DELIVERY or DISTRIBUTION to the TYPE of products advisers are more likely to recommend, now polarising not the advice but the investments and life planning clients may opt for.
Sipp pension products are the type of product wealth managers are most likely to recommend, yet Sipps are not included in the "menu" so advisers are therefore less likely to need to give consumers a copy of the menu before delivering financial advice because products and commission listed on the menu only deal with mass market products.
That said, Shields believes depolarisation may eventually have an impact on the high-net-worth market, however, under the new definition of 'depolarisation' if current pensions reforms continue as planned.
Increased interest in Sipp products – should residential property investment eventually be allowed within the Sipp wrapper thanks to pension simplification – could see the self-invested product becoming a mass market product and therefore falling under the depolarised regime.
"The menu only works with mass market appeal products, but reform of pensions and Sipps might drive the need for these products to eventually be included," says Shields.
Instead of influencing product distribution, depolarisation may instead provide larger firms with the opportunity to make cost savings and "fill any gaps" in their product range with those offered by other firms, adds Shields, rather than designing new financial packages or products.IFAonline
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