Which? principal policy adviser Mick McAteer believes the protection industry will be thrust to the top of the financial services agenda in the years ahead, writes Johanna Gornitzki
With the property market thriving and pensions continuing to hit the headlines it is hardly surprising that the protection market is seen as the underdog of the financial services industry, with protection products far down on consumers' list of priorities.
But this is about to change – at least if you believe Mick McAteer, principal policy adviser at Which?.
He says: "I suspect that in a few years' time we will have the same debates around protecting people against risks that we currently have with pensions.
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"And it will not just be the Financial Services Authority (FSA) discussing the regulation of protection products but the issues surrounding protection will also be highlighted by the Government that will put how to best protect people on top of its agenda," he predicts.
Having worked in the financial services industry for over 20 years, McAteer should know what he is talking about.
He started his financial career as an analyst for two fund management companies in the City of London. However, liking the idea of writing for a magazine he joined Which? – then called the Consumers' Association – in 1994 as a reporter. His stint as a journalist did not last for long, however, because when the organisation split into a campaigning division and a magazine, he chose the former. Currently principal policy adviser, he is trying to develop policies with the consumers interests at heart.
While his remit includes the whole of the financial services market, McAteer believes the protection industry in particular is facing numerous problems. "There seem to be many cases were unsuitable products have been pushed, and in many cases these products end up being pretty useless. There is also a problem with the lack of transparency and clarity surrounding policies," he says.
Many industry experts believe protection products are too complex to be sold without advice. However, McAteer does not think that this is the root of the problem. He says: "We all know financial products can be complex. But it is not so much the complexity of the products but people's circumstances that is making the product difficult to buy without first receiving advice. This is because buying protection may involve taking into consideration complex health issues. I think that is the real issue."
Execution-only
However, while McAteer insists he always advises people to take advice, he does not rule out execution-only. "Some people do not want to take advice and that should be their choice. Therefore, execution-only should always be an option," he says.
Examining the current advice regime, McAteer finds it hard to hide his contempt when the introduction of depolarisation is mentioned. Arguing that the FSA has created an unnecessarily complex advisory regime, he says: "Advisers should either be independent or sales people. The other options currently available are simply not necessary. At the end of the day, you are either truly independent and you recommend the whole of the market or you just sell products from a specific company. What we would like the FSA to do is to create a simplified advice framework where advisers are advisers and anybody else is a sales person."
He also thinks it is wrong to look at protection in isolation. While agreeing there must be specific rules for selling each separate product, McAteer does not understand the logic behind having different advisory regimes for different financial products. "If you were taking out a mortgage and needed some protection while at the same time wishing to review your pension you would probably face about 30 different types of advice depending on what combination of products you are buying. It's just a bit crazy," he argues.
Over the past couple of years, the pensions industry has been plagued by several mis-selling scandals. While the protection industry has fared slightly better, McAteer thinks it is only a matter of time until the types of mis-selling scandals seen in the pensions sector are seen in the protection market. "You would think that complaints in the protection sector have faltered. However, that is far from the truth. Payment protection insurance complaints were up 62% from 2001 to 2005 and income protection fared even worse with complaints up 87% over the same period," he reveals.
Explaining how Which? has tried to sort out the problems in the pensions sector and is now having to do the same thing in the protection area, he says: "It's just like pushing down on a water bed – all that happens is that the problem sorted in one area pops up somewhere else."
McAteer believes mis-selling is to a large extent triggered by conflicts of interest. "Commission and over-remuneration simply reward sales staff for the amount they sell rather than the quality of what they are selling.
"It means that the commercial interest of the provider and the sales person override the interest of the consumer. There is very little commercial imperative to treat customers fairly. That is the nature of competition – providers and product manufacturers compete for distribution, they don't compete for the end user.
"While they say they are customer-focused they are really competing for the adviser community. Until the FSA addresses this, all we will see is mis-selling over and over again," he warns.
Benchmark
While waiting for the FSA to do something, McAteer reveals that Which? is currently conducting work in the protection arena, which will be published later this year. As part of this, it is trying to develop a benchmark for protection products to promote cover that genuinely offers the protection that people need in case they should fall ill and become unable to work.
"As with pensions we think there has to be some kind of alternative solution to meet the average earner's needs. Therefore, we are trying to develop a benchmark," he says.
McAteer argues that this type of product is a necessity since the protection industry will never be able to reach the mass market – and the sooner the FSA and the Government realise this, the better. "It is about getting the Government and the regulator to understand that when you start talking about trying to help people provide for retirement or help people protect themselves against the risk that life throws at them we have to understand that there is a limit to what the retail market can actually do. I am not criticising the industry - it is just a fact of life," he says.
McAteer says in the future people will have to make protection a priority. "With more people living in single households and the labour market being uncertain people now need protection more than ever," he says.
But while this may be true, few consumers realise this – leaving it up to McAteer and his team to lead them the way.
