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RDR – protection advisers united in defence of commission

September 2009 News

There is a real risk of consumer detriment in the protection market but it lies not in an exodus of advisers from investment to protection but in the Financial Service Authority’s (FSA) remuneration rules making the same journey. Responding to Health Insurance’s recent Retail Distribution Review (RDR) survey of industry sentiment, IFAs from across the country expressed an overwhelming, united concern that a change in remuneration from commission to fees, one possible outcome of the regulator’s review of the sector, could widen the protection gap, leaving the most vulnerable under-insured.

“I can tell you from 32 years experience that nobody wants to pay a fee or take a cheque book out,” said Diane Saunders, director of Leeds-based IFA Diane Saunders Financial Advisers. “People have not got that sort of capital.”

Saunders highlighted the mistrust with which the public regards protection providers.

“Protection is a dirty word because most people think that every protection provider gets a claim then leaves it on their desk and tries not to pay it,” she said. “It’s scandalous that people at the top are so out of touch with people on the ground. Don’t put more obstacles in the way.”

Emma Walker, sales manager for financial services at online comparison site moneysupermarket.com, agreed that consumers felt differently about paying for investment and protection advice and warned against “disincentivising the purchase”.

“You can clearly argue that premiums would be reduced industry-wide if no commission were paid to advisers on protection products,” said Henrietta Oxlade of Bond Wealth Management, an IFA based in London. “But on the flip side, this would not help clients who have neither the funds nor the inclination to pay for professional advice in the area of insurance.”

Alan Lakey, partner at Hemel Hempstead-based IFA Highclere Financial Services, said the commission model suited consumers, in the same way that payments for any large purchase were usually spread over the course of several years.

CONFUSION

Reaction to Health Insurance’s survey was divided over the feasibility of operating two regulatory regimes for investments and protection. Saunders said those concerned about the co-existence of two regimes failed to credit the general public with the ability to understand the different charging structures.

“You just have to explain to them, that they couldn’t afford to pay you to arrange the protection,” she said. “Is a client going to pay for something that never gets produced if they are rated?”

Oxlade, who advises on both products, believes both the industry and the public could “easily adapt” to two regulatory regimes.

Lakey said the issue of co-existence was the crux of the issue, and demonstrated the failure of the RDR to achieve its stated aim of improving clarity for consumers. “The FSA will say that I can adopt customer agreed remuneration for all plans,” he said. “Yes I can, but I don’t want to. My client is now really confused. This is the horror that the RDR will foist upon the industry.”

PROFESSIONALISM

Advisers agree that more could be done to raise the standard of advice offered. Phil Jeynes, key account manager at Direct Life & Pensions, believes that a specific qualification should be introduced while Walker stressed that advisers should “take ownership of their professional development”.

“We still need to raise the standard of advice in the protection market,” Walker said, highlighting the importance of lifelong advice extended beyond the clawback period.

Lakey said there was no “decent” protection exam currently available and suggested that any developed must test advisers beyond the basics, to assess their ability to compare plans on more than just cost.

The deadline for responses to the FSA’s consultation paper is the end of October. While advisers are keenly aware of the danger of a simple transfer of proposals from investments to protection, there remains an understanding, and perhaps hope, that industry fears will be unrealised.

“The FSA has said that protection is not on its radar just yet,” pointed out Jeynes. “They have not said they are completely opposed to commission so as long as we can prove the model is not broken, they won’t.”