Outlook: Polarisation

IF IT ain't broke, don't fix it. This adage seems to have been lost on Office of Fair Trading, which reported yesterday on the vexed issue of "polarisation" between independent financial advisers (IFAs) and insurance company salesmen.

Polarisation, which has been in place for 12 years, means advisers are either allowed to sell the financial products of any and every company in the market, in which case they are IFAs, or they are restricted to just one firm's goodies, in which case they are tied agents

Not surprisingly, many salespeople don't like being tied to one company only. What they would like is "multi-tie" arrangements, where they link up with several providers and sell the best from each.

Enter the OFT, which has always disliked polarisation because it is seen as potentially anti-competitive. The problem for the OFT is that polarisation works reasonably well and, for all its faults, is the best of all available options. Most people know what an IFA is and does as compared to a typical insurance salesman. They value independent advice and would not like to see the difference between the two ends of the spectrum becoming muddled.

Not the OFT. Its proposal is to leave the current system in place for sales of life insurance and pension policies, but to allow multi-ties for sales of unit trusts and investment funds.

The OFT claims that while genuinely independent advice is needed for "complicated" products like insurance, it is unnecessary when it comes to "simple" decisions such as whether to invest in an emerging market fund, or an investment trust with a massive discount to net asset value.

It is hard to imagine a compromise more confusing for ordinary punters than this one. The OFT thinks polarisation is anti-competitive. But it has backed away from the logic of its own analysis, which would be to allow multi-ties across the board, and instead created a false distinction between pensions and investments.

Allowing multi-ties for all products would have turned the industry upside down as the smaller life companies saw their cosy relationships with tied agents undermined.

But the half-way house devised by John Bridgeman, the OFT's director- general, is also a recipe for confusion. He says he is confident that his proposals will be approved by the Treasury. Let's hope the new Economic Secretary, Melanie Johnson, takes a different view.