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The Impact of Depolarisation: Future Scenarios and Strategic Imperatives

Grist Limited
April 1, 2003
52 Pages - SKU: GRT896753

Abstract Table of Contents Search inside this report Related Reports

Countries covered: United Kingdom

The Impact of Depolarisation: Future Scenarios and Strategic Imperatives

A blue-print for a radical restructuring of the financial services industry for those involved in the manufacture or distribution of packaged investment products.

The UK retail financial services industry is currently facing two core challenges:

issues of institutional solvency, product performance and ensuing product appeal caused by the enduring bear market in equities and historical approaches to product marketing

issues of future distribution structures caused by the wholesale reformation of the UK regulatory regime.

Underpinning much of the current proposals for regulatory transformation lies the decision of the Financial Services Authority to abolish the polarisation regime for packaged investment products. For some 15 years, the industry has been moulded and constrained by the requirements of polarisation. Many of the familiar fundamentals of industry strategy and practice have emerged as a result of the current regulatory structure. Within the next two years, however, the regime will have been abandoned and financial services institutions must therefore prepare for a radical restructuring of their roles and aspirations within the industry.

This report deals with the releasing of the constraints of polarisation and the potential directions in which institutions—along with their partners and competitors—may move as a result. The report’s key findings outline the obstacles and opportunities which industry strategists must now evaluate and navigate to ensure future competitive success. These findings deal with the emerging expression of the new regulatory approach, the strategic impact of the regulatory change for industry players, and the position of depolarisation within the wider transformation of industry regulation and competition.

Additional Information

What you will learn

The report:

Outlines the scope and application of polarisation which has defined industry structures since 1988

Looks at the underlying issues of competition which have been restricted by the regime in pursuit of consumer protection. It is this balancing act between adequate protection of consumers and interference with competitive forces which has led to the current transformational proposals.

Assesses the alternatives to operating within the current polarisation regime.

Deals with the strategic impacts of the core regulatory proposals on various industry stakeholders, specifically: product manufacturers, existing appointed representatives and company representatives, IFAs, and consumers.

Draws out the key findings, indicating the areas of key focus for industry executives and strategic managers.

List of figures
About the International Institute of Banking and Financial Services
Author profiles

Executive summary

Regulatory approach
Structural implications
Wider context of reform
Report outline

Chapter 1: Polarisation regime and its application

Tied advice
Independent advice
Exceptions to polarisation
Stakeholder pensions
Direct offer advertisements
Execution-only business
Stockbroking and discretionary portfolio management

Chapter 2: Balancing competition and consumer protection

Office of Fair Trading 1986-1987
Securities and Investments Board review 1991
Personal Investment Authority debate 1995
Office of Fair Trading 1998
London Economics' review for the FSA 2000
FSA stage 1 review 2000-01
FSA stage 2 review 2002-03

Chapter 3: Emerging regulatory environment

Option 1: Redefinition of polarisation for all products—multi-ties and provider-driven gap-filling/adoption
Single-tied agents
IFAs
Option 2: The OFT recommendations
Option 3: Minimum standards exemption
Option 4: Retaining the essentials of polarisation—gap-filling/adoption
Provider-driven gap-filling
Agent-driven gap-filling
Option 5: Separate product panel selection from commission negotiation
Option 6: Fee-based advice the only kind of independent advice
Option 7: No change
Option 8: White labelling
Option 9: Separating advice from product provision
Option 10: Free-for-all
Option 11: IFA-for-all

Chapter 4: Potential impact of proposed alternatives

Multi-tying
Product providers
Current appointed representatives
Company representatives
Independent financial advisers
Impact on consumers
Premiums, commissions and what constitutes a price anyway?
Gap-filling

Chapter 5: Conclusions

Regulatory approach
Strategic implications
Specialisation of manufacture
Vertical deconstruction
Simplified advice, simplified products
Hallmarks of success

Appendix 1: Tiered structure of distribution for financial services products

Endnotes

List of figures

Figure 1: Multi-ties and gap-filling
Figure 2: Provider-driven gap-filling
Figure 3: Agent-driven gap-filling

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