The health insurance and protection market covered
Waller: we cannot rule out RDR read-across to protection
A 'read-across' of the retail distribution review (RDR) to the protection space remains a possibility and intermediaries must continue to lobby hard to prevent it, an industry consultant said.
Last year, the FSA confirmed it will allow commission payments made to advisers for pure protection advice to continue, even though commission on investment sales will be banned.
Advisers feared if the same rules were applied to protection, the market could be decimated because very few consumers would be prepared to pay a fee instead.
However, Clive Waller, managing director of CWC Research, warned the FSA will "squash" the market if it deems advisers are mass-selling protection purely as a means of boosting income.
Launching a research paper for Swiss Re this week, Waller (pictured) said a read-across remains a possibility.
"There is a concern over a read-across, which would kill the protection market until a new distribution model could be formulated, but leave the intermediated route dead," he said, introducing 'It won't happen to me: A Study of the UK Intermediated Disability Insurance Market'.
"The concern is that if too many advisers use protection as a means of increasing income, the FSA will squash the market, regardless of if it is being mis-sold or not.
"I cannot say that is definite but it is the position we have been told the FSA have currently taken. We must not rule out this read-across and should continue to lobby as hard as we can to prevent it."
However, a key finding of the report suggested protection business will be a key component of adviser firms' cash flows post RDR, with the exception of high-end wealth managers.
But it also warned the current protection distribution is ineffective.
"Mis-selling brought about the death of endowment house purchase and personal pensions business, forcing advisers into investment-related and pre- and post-retirement planning for 'baby boomers', whilst ignoring the younger population who have a need for protection products," the report reads.
"Younger distributors typically have poorer knowledge of critical illness and income protection policies, and even those who are aware of the nature and causes of long-term and serious illnesses do not tend to apply that knowledge when selecting a product solution."
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This is a distinct possibility
In talking to other firms over the last year it is apparent that many forms see protection as a life saver post RDR. Given the highly toxic nature of the retail investment market, why on earth wouldn't they? We are looking at this as as an option too - there is nothing wrong with having a successful protection broking arm. But the 'read across' fear is very real - if the FSA see a rapid increase in activity, I am sure they will try to flatten it, so the window is what? - 3 years? Very short term planning is now the only way to go if you live in the real world.
Posted by: huw | Jul 15 2011
Consumer education
Surely the role of the 'adviser' is to inform and advise (educate/not sell) the consumer. Then provide the consumer with the best options from which the client selects based on their own understanding and preference - there's your distribution model!
Posted by: Richard Wills | Jul 15 2011
Is it about the fee?
I think indemnity commission should go and the FSA are right to look at this. As long as they allow any "fee" to come out of the product on an ongoing basis the client wont have to pay a fee directly, advisors are not at risk of clawback and there will be an incentive to look after the client on an ongoing basis. Everyone wins. The only issue is the conversion for some firms from high up front commissions to low regular income which is difficult but sometimes doing business correctly and efficiently is tough.
Posted by: Saul Conway | Jul 15 2011
I can see how this might happen.
If the FSA has a hidden agenda to implement a read-across then it will simply give a few rogues enough rope to hang themselves and then tar us all with the same brush. Margaret Cole recently stated that IFAs were relcutant to 'shop' rogue colleagues. That remark was both offensive and disingenuous; there are proven instances of individuals being reported and the FSA doing nothing. That is the means by which the FSA will seek to implement its hidden agenda if indeed it has one. Having alerted ourselves tro this possibility therefore, we know what to look out for. We must hold the FSA to account to ensure it does its job properly in enforcing the existing regulations and that way it won't have the need - or excuse - for more.
Posted by: Neil F Liversidge | Jul 15 2011
RDR
My Prediction: They have to test run RDR in the real world first before they even think about protection. Right now the oil pipes, engine and chassis all need to be worked on, maintained and monitored then the RDR vehicle will have to make a pitstop refocus and be on its way again. Once its hit the road again the front wheels are going to come off, crash and burn and then they are going to have to rebuild the poor machine again. Formula 1 exists and works but its taken years to get there!
Posted by: Pete | Jul 15 2011
Lapses & CA
Sam IFA's have to make allowances as per the prescribed FSA formula when completing their normal 6 monthly returns which includes lapses, clawbacks and indemnity commissions. Unfortunately or fortunately you can actually use a completely different calculation for HMRC tax calculations ; )
Posted by: Jim Fleming | Jul 15 2011
Correction
Pension misselling did NOT kill regular premium pensions, government tinkering did with abolition of div reclaims and invention of stakeholder pensions and retention of RU64
Posted by: Nameless | Jul 15 2011
Rod for own back
The FSA created this problem by failing to address the issue when drawing up the RDR. They have gone down the product route and not the advice route. Many IFAs advise on protection and investments / pensions and so to have a hybrid system of income disclosure was illogical. Mr. Client, we will do your ISA for free and we will take commission of £2,000 on the protection plan. The FSA could do with getting rid of indemnity commission too - how many IFAs make provision for indemnity commission clawback in their accounts and the risk to CA.
Posted by: Sam Caunt | Jul 15 2011
Mass Selling - Seriously?
Does Clive genuinely believe that there will be "mass selling" in the way he describes? A small uplift maybe. "We're doomed?" I think not.
Posted by: Pete Wildebeast | Jul 15 2011
give it a break
What a load of B*"#0((ks.
Posted by: mervyn | Jul 14 2011
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