Muddle ahead as tied advisers break free

Will consumers know where to go for impartial financial help when a rule change makes bank staff free agents?

Finding reliable, independent financial advice can be difficult. Which financial adviser should you choose? And how independent are they anyway? But if you are confused already, the bad news is that the situation is about to become worse. 'Polarisation" rules - which make it clear who is doing the advising and where the advisers are coming from - are set to change.

Finding reliable, independent financial advice can be difficult. Which financial adviser should you choose? And how independent are they anyway? But if you are confused already, the bad news is that the situation is about to become worse. 'Polarisation" rules - which make it clear who is doing the advising and where the advisers are coming from - are set to change.

At the moment, independent financial advisers (IFAs) can give advice on all investment products on the market. But representatives of banks and building societies can sell only their own products, which is why they are known as tied agents. However, when stakeholder pensions are launched next month, banks and building societies will be able to sell products linked to a variety of providers, not just their own. In effect, they will become "multi-tied" agents.

The change was considered necessary because the low charges on stakeholder schemes mean they are expensive to provide and few companies would have been able to offer them. But as the pensions have to reach a huge market, there need to be as many sellers as possible.

There were also plans to allow banks and building societies to sell CAT-marked (low cost, easy access, simple terms) individual savings accounts from a range of providers. But a decision on this has been postponed until the autumn when, under phase two of depolarisation, the Financial Services Authority (FSA) will review the regime in relation to all other investment products. It is likely there will be significant changes to the rules on the way life policies, personal pensions and collective investment schemes, such as unit trusts, are sold.

Polarisation was introduced in the 1986 Financial Services Act to clarify things for consumers. Those people who sold financial services were required to "polarise" - either tie themselves to the products of a single provider and offer no advice on any others, or become an IFA and prove they would give good advice on a wide selection of suppliers.

Before polarisation, big banks and insurance companies could advise customers to buy their own branded products, regardless of how suitable these investments were or how they were performing. They were under no obligation to prove they had given good advice.

Paul Smee, director general of the Association of Independent Financial Advisers, believes changes to the present system will muddy the waters. "The great virtue of polarisation is simplicity," he said. "Customers will be confused." He thinks sellers will play up to an "independence" which they don't really have, and that those who have been selling products from a single provider for years won't be able to differentiate between products from other providers. "How disclosure is handled is very important," Mr Smee says. "Will there be any implication [in terms of extra commission, for example] if a salesman tells you that one product is better than another?"

The FSA wants to alter the existing rules because, as it states, they "appear to have some anti-competitive effects, largely because competition is blunted in the tied channel". The director general of the Office of Fair Trading issued a report in 1999 which concluded that polarisation restricted, distorted and prevented competition.

Following depolarisation, advisers will be responsible for all aspects of the information they offer, whether concerning the products of their firm or those of other providers. Any complaint about a product will have to be addressed to the company which created it, which would not necessarily be the one that sold it.

Another problem with multi-tied agents is that they can only give limited advice. They cannot comment on investments already held by the client, nor on products the company chooses not to offer.

Many IFAs say they are worried consumers will become confused, and possibly shy away from seeking advice altogether. But Patrick Connolly, at IFA Chartwell Investment, says the new system will be healthy. "It will create a lot more competition. This will put pressure on IFAs, and many will struggle. But we are not overly concerned. We are more than happy to take the banks on."

Until the new rules are introduced, it will not be clear how it will all work in practice. Investors should always take care when choosing an adviser anyway, with or without polarisation.

Customers should know which products a firms is authorised to offer. At a bank, for instance, the staff will probably only be authorised to sell the bank's own products - a limited range that may not include the best on the market.

If you want access to a wider range of products, you will need to consult an IFA - but check that this person is qualified. At the very least an IFA should have passed the three levels of the Financial Planning Certificate.

The best way to find an IFA is by personal recommendation. Failing that, try IFA Promotion (www.unbiased.co.uk), which will list a number of IFAs in your area.