Holloway products and the RDR

Paul Hudson of Cirencester friendly has given the FSA’s judgement on Holloway plans the thumbs up but feels there is still more work to be done for the product.

As chief executive of Cirencester friendly, I have been heavily involved in discussions with the FSA surrounding Holloway products and where they fit in with RDR.

Under the original proposals IFA's would have to charge for the advice they provide on Holloway products.

This was a big concern to mutual organisations whose products are aimed at a core market of blue collar workers and self employed, many of whom are unwilling or even unable to afford to pay for advice.

It was feared that this would discourage take up of the products by the very people who would benefit from them the most.

Following previous consultation papers, the FSA has proposed linking the definition of a Holloway product to four key criteria, which would allow certain Holloway style products to be exempt from the fee charging element of RDR.

So what does the Holloway exemption mean?

If the proposals go through, IFA's will not have to charge a fee for providing advice on Holloway style products.

This means that advisers can continue to provide affordable income protection to their clients post RDR.

However, qualifications of advisers must be upgraded to the level of the Financial Services Institute Diploma (DipFS) or equivalent post RDR.

IFA's will also still be eligible to receive commission payments from Holloway providers like Cirencester friendly in the same way they do now.

It is, therefore, great news that the FSA is proposing to exempt certain Holloway products from fee charging.

But another reason we have been engaging with the FSA is to try and get Holloway products on a level playing field with other income protection products which are fundamentally the same but don't provide an opportunity to build up a modest capital balance for the policyholder.

Whereas the underwriting surpluses of pure protection providers go to the company shareholders, Holloway providers are mutuals, so available surpluses go to the members, the people who hold the contracts.

This surplus sharing is viewed as an ‘investment element' by the FSA which in turn has resulted in Holloway products being classified under COB rather than Insurance Conduct of Business (ICOB) rules.

Whilst the exemption from fee charging is a step in the right direction, we believe there is still work to be done and I continue to work with the FSA to ensure that mutual organisations are able to carry on offering the products they provide to those who need them most.