Entrepreneur Michael Ward , founder of Direct Life & Pension Services, speaks to Angela Faherty about why the FSA is set to shake up the industry and the perils of non-disclosure
Bolton-born Michael Ward started his working life as a computer analyst but after just a brief stint in the sector, he joined the financial services industry as a trainee mortgage consultant with John Charcol. Three years and a few jobs later, he set up his own mortgage company, Ward Mortgages, and has never looked back.
"I set up a mortgage practice to start with and then about seven months later set up a pensions business, Direct Pension Services. The idea was that it would act as a mechanism for additional business after the mortgage sale, so that once the client had moved in and settled down and I had established a rapport with them, I would talk about their other financial needs," he says.
The buoyant mortgage market of the early 1990s meant that for Ward, business was booming. But as with all entrepreneurs, new ways to expand the business were always on his agenda, and it was a move by a leading direct competitor that gave Ward some ideas as to what he should do next.
"In 1996, Virgin Direct entered the market with a cheap term assurance solution that was being marketed off the page. That was the trigger that made me realise Direct Pension Services wasn't doing anything like what it could do, whereas under a new brand offering life insurance, we could offer a brokered solution that could give the customer better value for money," he says.
In order to achieve this, the business was rebranded Direct Life & Pension Services. Today it is a regulated entity with a number of distribution channels. As well as offering life insurance and a suite of health products such as critical illness and mortgage protection to the direct market, it offers its life insurance services through other businesses such as More Than, AA, British Gas, and Goldfish.
The company also has an intermediated arm, LifeQuote, which was created in 2000, and was the first brokered life assurance quotation service to be placed on the internet. Although originally designed for in-house use only, today it has approximately 1,800 agencies, with firms such as London & Country, Alexander Hall, and Purely Mortgages, all offering life insurance to clients.
Need for advice
Having such an extensive proposition means Ward has a number of business channels to generate income. But with a battle raging in the market about the threat of direct sellers to the advisory community, how does Ward feel about the need for advice?
"I am a well qualified financial adviser and I have given some very specialist and detailed advice to many customers. But Direct Life & Pension Services also has many thousands of customers who have never asked us for advice, but have simply traded with us," he says.
"Who are we to say they need advice if they don't want to pay for advice or receive advice? Some people say that advice is the only way to do business, but then when you probe a little deeper and look at the kind of advice being given, you realise how poor it can be."
One example of bad advice, Ward continues, is the lack of life insurance policies being put into trust. He says that although bancassurers are tied to one product, research by one insurer has shown that 90% of these life sales are put in trust. But of the policies coming to the same insurer through the IFA market, that figure is only 4.5%.
"I can only surmise that the bancassurers, while they are tied to one product, have to do it properly. But for whatever reason, whether it is because IFAs are lazy, or they don't understand what a trust is, they are not doing it. This is a problem," he says.
Non-disclosure
Ward is also concerned about non-disclosure, an issue he fears may cripple the market. "The statistics surrounding non-disclosure are appalling. This is going to ruin our industry if it carries on. Not only are we declining way too many critical illness claims, but the fact that all the declined claims – almost two-thirds of them – are being declined because of non-disclosure is atrocious."
Ward feels that the fact that contracts are not being discussed properly at the point of sale could be a reason for the high non-disclosure rates. He says regulation hasn't helped and that many advisers simply do not have time or an understanding of some of the questions they are expected to answer.
"One of the downsides of regulation is that it has produced such a protracted interview process that many advisers don't get the chance to go through the process properly. That is a weakness in the sales area. Every time we see a story in the press about a client who bought critical illness in 1999 and the provider won't pay out, it damages our industry," he says.
The market future
Looking ahead to the future of the market, Ward doesn't think pension term assurance (PTA) will be the saving grace many industry players hope it will be.
"Pension term assurance isn't the revolution that is going to save us all. There are a couple of reasons for this; the first is that it has the wrong name and there is a risk that people will think they have bought a pension. There are also issues around the advice process, especially if a customer has bust their overall pension cap on claim."
Another concern, says Ward, is that if a client buys a PTA policy, any tax status they had on any pension schemes bought before A-Day are lost. So by buying a simple term assurance policy to save £5 a month, clients may have cost themselves the difference between a new-style pension and an old-style pension in terms of the tax regime. He reckons this is dangerous territory.
"I think for a pension adviser, pension term assurance is a great tool. But for a mortgage adviser, for example, it is really risky, because they are not pension advisers and they do not have the permissions, expertise and training. And when people start to log complaints, what will happen?"
While Ward admits there are challenges in the market, he believes there are good times ahead. He says cleaning up the industry and ensuring bad press becomes good press is vital. And despite the added pressure regulation has created, he hopes the second year of the reign of the Financial Services Authority (FSA) will sort the wheat from the chaff.
"The industry is one year into a three year process with FSA regulation. Potentially, for some businesses, there is trouble ahead as I don't think their practices are up to scratch. The FSA is here and it will lasso the cowboys, bring them down and tidy up the market," he says.
