UK planners to undergo radical change

The financial planning industry in the UK could be about to undergo one of the most significant reforms in its history after the Financial Services Authority (FSA), the industry’s governing body, announced radical new deregulatory proposals last week.

The proposals are the result of a wide-ranging review of the way financial advice is structured in the UK and centres around the removal of the so-called polarisation regime, which was introduced by the now defunct Securities and Investment Board in 1988.

The polarisation regime essentially meant that financial advisers who sold life insurance, personal pension and collective investment products, had to be either truly independently owned and advise across all products and companies in the market, or be tied to one particular institution and sell only that company’s products.

The proposed rule changes, if they are adopted, will mean that limits placed on outside investment in firms of independent advisers would be removed, but those advisers wishing to be classified as independent would have to give up commission payments in favour of a defined payment system which outlines all fees to clients in advance.

Those advisers tied to institutions would also be given the freedom to broaden their range of products to include those from other institutions.

The reform proposals were instigated after a series of reports, by regulatory and other independent bodies, concluded the polarisation rules had significant anti-competitive effects and prevented much needed innovation in retail investment markets.

The FSA’s announcement has already sparked speculation that Australian groups like AMP and the National Australia Bank will look to bolster their already considerable presence in the UK if the proposals take shape.

In a note issued to its clients directly after the FSA announcement, broker JB Were indicated that it saw the proposed reforms as a positive for AMP, with the potential to increase the group’s sales to its UK customer base.

AMP, through its AMP, NPI, Pearl, London Life and Henderson brands in Britain, already has some 3.6 million active retail clients across the UK.

The reforms will be the subject of a three-month long process of industry consultation in the UK before the FSA reaches a final decision on the current raft of proposals.