A critical analysis of depolarisation

The Financial Services Authority (FSA) is about to implement wholesale reforms of the regulatory structure of advice in the retail financial services sector. Instead of having to choose between a “tied adviser” or an “independent financial adviser” (IFA) under a “polarised” regime, consumers will have a much wider choice in terms of the range of products and scope of advice available under the new “depolarised” structure. In undertaking these reforms, the FSA aims “to improve consumer outcomes” by dealing with what it argues are market failures in the retail financial services market. This paper assesses whether the FSA’s final blueprint for financial advice can provide the improved consumer outcomes the FSA intends. It critically examines the issues of choice and quality for both products and advice, as well as considering the extent to which the reforms will create the kind of “empowered” consumers the FSA appears to expect. It argues that the reforms may not appreciably address the market failures the FSA sets out to remedy, and suggests that this is due to the likely inability of consumers to understand and take advantage of the new marketplace that is being created. This paper suggests that much greater emphasis should have been placed on financial education and extending the availability of advice before attempting such radical reforms.