FSA admits that protection market will not escape from the RDR debacle
By Lucy Quinton
The Retail Distribution Review (RDR) will affect the protection market, the Financial Services Authority (FSA) has confirmed.
Stephen Bland, director of small firms division at the FSA, admitted its findings from the RDR process could be applied to the protection market.
However, Robin Gordon-Walker, spokesperson for the FSA, said the protection market would have to "wait and see" in terms of details as, at the moment, the RDR would be focusing on investments.
Alan Lakey, principal of Highclere Financial Services, slammed the FSA: "In its current incarnation, the RDR makes no mention of protection or mortgage advice and this is clearly unworkable. Many clients approach me for a mortgage backed up by an ISA savings plan and a protection policy. This means only the ISA advice falls under the RDR proposals. Common sense suggests that the mortgage and protection markets must fall within the RDR limit."
He added: "The basis of the RDR, as expounded by the FSA, is consumers are being confused, they are not receiving appropriate outcomes and they lack confidence. The FSA suggests these are the reasons for the pension and savings gaps and presumably the protection gaps. This logic is flawed because it assumes consumers make decisions to purchase in a structured way. The reality is that most consumers need some event to galvanise them into action."
Also commenting on the RDR, the Association of IFAs said: "The proposed changes must provide a better, not just different, service for consumers and help them connect with the financial services market. That is why we believe the FSA should have undertaken a retail market review rather than just focusing on distribution."
Meanwhile, Aegon conducted a survey of IFAs and found more than eight out of 10 IFAs said protection products should be subject to the same commission disclosure as investment products. Also, seven out of 10 said maintaining a different regulatory regime for protection products would be confusing for clients.
Steven Cameron, head of business regulation at Aegon, said the investment market was not the same as protection but that it would make sense for the RDR to include both. He added that many IFAs advise on both investment and protection to the same client so it is worthwhile looking at the bigger picture and ensuring the regulatory regime makes sense from the consumer perspective.
