HM Treasury 2
8 November 2000
MODERNISING INVESTMENT SALES
CAT ISAs and stakeholder pensions could be available through High Street and internet savings supermarkets early next year following liberalisation of marketing rules for some investment products announced today.
The Financial Services Authority (FSA) proposes to modernise the rules about the way some savings and investment products can be sold (polarisation rules). This means that investment advisers currently restricted to selling the products of a single company (tied agents) will be able to offer products from other providers.
Welcoming the proposals, Economic Secretary Melanie Johnson said :
“Savers will be the winners from the FSA recommendation to modernise the rules on polarisation. Enabling tied agents to offer a wider range of savings vehicles will pave the way to provide more real choice for consumers and help to encourage the savings habit.
"It means that banks, building societies and insurers, as well as experts or specialists in particular areas, which have only been able to sell their own products will soon be able to offer greater choice of products, or fill gaps in their existing product range.
“This welcome modernisation to meet changing customer needs will encourage responsible financial planning and better serve consumers’ long term interests.
“These proposals work with the grain of market developments. They support Government efforts to promote good value savings products and reflect the introduction of new products, new sales technology, and changing customer expectations. .
“Provided that the basis of the advice is made clear to customers, these proposals will provide the opportunity to develop High Street and internet savings supermarkets and other innovative new ways for savers to get better access to a wider choice of products and advice.
“For customers who prefer completely independent advice under existing arrangements, there will continue to be a place in the market for advisers who do not wish to be tied to any particular product providers.”
FSA Chairman Sir Howard Davies has written to the Chancellor of the Exchequer, setting out his view that the FSA can best deliver its statutory responsibility to protect consumers by promoting competition among regulated firms by updating and modernising its polarisation rules. Economic Secretary Melanie Johnson has replied on behalf of the Chancellor, welcoming the proposals. Copies of both letters are attached. The FSA will now proceed with phased reform of the rules for marketing savings and investments.
Rules for selling products that have minimum standards or are distributed in a way that helps customer self-selection of investments will be relaxed in the near future. Buyers of CAT standard ISAs, the new stakeholder pensions available from 1 April 2001, and direct offer sales, including fund supermarkets, will be among the first to benefit.
The FSA also plans to look further at more radical action to modify polarisation rules for other products, alongside a wider review of what customers are told about savings and investments and the people who sell them. The Financial Services Consumer Panel stressed the importance of improved disclosure and consumer understanding in their comments on the London Economics report published by the FSA in July 2000.
These changes could affect all retail investment products and lead to significant changes in the structure of retail distribution and sales of savings and investment products. This process could - after further consultation - result in new rules being in place in 2002. The FSA proposal to publish next year tables of information about several ranges of retail financial products, including endowment policies, investment bonds, mortgages, personal pensions and pooled fund ISAs, will complement this initiative.
NOTES TO EDITORS
1.What is polarisation ?
Polarisation is a set of rules made by the regulatory authority about the way some savings and investments can be sold. At present, these can only be sold either by tied salesmen (who can only sell the products of a single provider), or by independent financial advisers (IFAs) (who must consider a range of products across the whole retail market to identify the most suitable product for the customer they are advising).
These rules came into effect in 1988 to tackle problems that arose in a much less critical and sophisticated market. The polarisation rules apply to
- life policies
- personal pensions
- collective investment schemes, and investment trust saving schemes whether held in a PEP, ISA or otherwise
2.What effect would the FSA proposals have ?
Tied agents will if they wish, be able to sell the products of several providers (‘multi-tied’), increasing consumer choice and stimulating competition. But existing IFAs will not be obliged to abandon their independent status under a more liberal regime. This would continue to be recognised and IFAs’ business relationships with their clients, and potential clients, would continue as before.
The FSA’s two stage approach would start with consultations on liberalising polarisation rules as they apply to stakeholder pensions, CAT standard ISAs, and direct offer sales. The selling rules that apply to other products, such as life insurance and unit trusts, would be considered alongside a wider review of what customers are told about savings and investments and the people who sell them.
3. What processes are involved ?
The report of the Director General of Fair Trading (DGFT) ‘The Rules on the Polarisation of Investment Advice’ was published on 3rd August 1999 (OFT press release 29/99) This considered the effect of the polarisation rules on competition in the industry.
The DGFT presented his report to the Chancellor under the Financial Services Act 1986, which allows the Treasury to make a decision in response, if it considers it necessary. The Treasury has not exercised this right as it considers that the FSA=s proposed changes to its regulatory rules would achieve the necessary objectives in promoting consumer protection and enhance competition.
The FSA will, as normal, consult on its proposed rule changes. Once the Financial Services and Markets Act 2000 comes into effect next year, it will be open for the Office of Fair Trading to consider the effects of the new regime, on competition in the market place.
- The FSA confirmed it would go ahead with the publication of comparative information tables in June 2000 (FSA press release 73/2000).
- Media enquiries should be addressed to Charles Keseru in the Treasury press office on 020 7270 5188.
The letter from Sir Howard Davies is available below in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website.
For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page.
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