The Financial Services Authority (FSA) has clarified the conditions firms need to meet to qualify for an exemption from the Retail Distribution Review's (RDR's) adviser charging and professionalism requirements when selling income protection products with an investment element.
After fierce lobbying from mutuals, the FSA agreed to exempt advised sales of Holloway plans from the RDR, but only if the investment element was not significant.
The FSA has defined 'not significant' as where the projected maturity value contained in the key features illustration is 20% or less of accumulated premiums.
Originally, the investment part of the products meant IFAs would have been forced to charge a fee for advising on them after 2012.
But, as Holloway plans are targeted at lower-paid blue collar workers who otherwise struggle to get cover, the mutuals argued this would make the plans too expensive for their target clients.
The FSA has now made Handbook changes to clarify how firms can ensure they meet the exemption:
- the firm will need to make an assessment to show all its Holloway policies have a projected maturity value of 20% or less, except that up to 5% of the remaining policies can have a projected maturity value of between 20% and 25%.
- there must be an assessment at least annually, and more frequently if the Holloway provider changes its premium rates or there is a change in the projection rates our rules require firms to use in illustrations.
- if an assessment shows that the conditions for exemption will no longer be met, steps must be taken within three months to ensure that the policy design is adjusted to meet the exemption conditions.
In addition, intermediaries will need to obtain a written notification from a Holloway provider confirming its Holloway policies meet the exemption conditions.
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