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A protection Waterfall

FSA director of retail policy and conduct risk Dan Waters has stirred up plenty of debate in the protection industry with comments made at the PFS Conference in London last week.

Responding to criticism of the RDR consultation paper from some in the protection industry, he suggested such attitudes were alarming and highlighted the need for a review of the protection market.

He told delegates: “Some of the reported reactions suggest that it is difficult to mis-sell protection products at all and that no serious consumer detriment can arise – presumably on the basis that if some people have the wrong policy or too much cover that’s no big deal.

“We are alarmed by the apparent complacency in some quarters. Consumers rely on their advisers to help them make the right choices about protection and it is unacceptable to recommend to a customer a policy or level of cover that they don’t need.

“The prevalence of such attitudes would only confirm to us that we need to review our approach.”

Personal Touch development director for DAs Amanda Wilson believes the FSA may be being misguided in its approach to protection.
She says: “The regulator prefers advice to be given and doesn’t like the idea of sales still being associated with financial services, unfortunately as we all know and understand protection will always need to be sold.”

Lifesearch policy adviser Matt Morris says the industry is not complacent about protection misselling.

He said: “In my experience consumers end up with the wrong policies because they haven’t taken advice in the first place, not because they have been mis-sold by a broker. The RDR entering protection would reduce the number of advisers in the market and exacerbate the problem, not help it.”

However, some in the industry agree with Waters’ comments.

Unleash Advice Partnership IFA Adrian Kidd says misselling of protection products does occur, such as selling a life insurance policy to a single person when they have no dependents, or selling a policy when the amount of cover is significantly less or more than necessary.

Kidd warns that if the FSA dug deep enough, it could “find plenty of evidence to suggest that protection is already being abused”.

Aviva UK Life protection director Richard Verdin says he is as concerned as Waters about the reaction of some in the protection industry to the CP.

He says: “It is important that the FSA appreciates that the reported opinions are not necessarily representative.

“Anyone who wants a healthy, dynamic and trusted protection market understands that it has to be submitted to the same principles and standards as other areas of financial planning.”

Results of the FSA’s analysis into the protection market are expected to be published early next year.

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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Steely Dan’s Upside-down World
    I am bemused to read that Richard Verdin and Adrian Kidd have found something of worth in Dan Waters comments. To my mind the cupboard is bare and he is striving for that mythical financial nirvanan that may ultimately send him mad, as it did explorers of old.
    Can it only be me that says to the FSA “if you believe mis-selling is going on then do your job. With £324m of our fees buttressing your fortress is it beyond you to ferret out these perennial mis-sellers that appear to be giving our industry a bad name?”

    This is the baby with the bathwater syndrome and I for one have had enough. We appear to have a regulator drunk on unchallengeable power making determinations that will bring an industry to its knees and result in such a massive reduction in protection and pension planning that the economy will suffer for decades to come.
    Is it only me? I don’t think so.

  2. Is anything not broken?
    In the opinion of the FSA is there any part of the financial services that is not broken? If there isn’t then what have they been doing since they were established!

    It seems every part of the industry needs a fundemental review and restructure very 12-18 months to make it work better at enormous cost to all involved but we don’t seem to be making any headway in the eyes of the FSA!

  3. Physician heal thyself
    It is more than a little galling to hear the FSA once more spouting on about the rogues they think we all are.

    Where was their own professionalism, when the banks, and everybody else it seems, were twisting the rules and setting us all on to decades of debt ?

    And their response….? Cash bonuses to all FSA employees. No surprise there then.

    They obviously do not have any grasp of the market they purport to be so concerned about.

    For every person who “buys” a £100,000 10 year Term policy from Direct Line et al, because they have had zero advice, and that is the standard quote amount, there are legions of clients who have been “sold” the correct protection product for their needs by an IFA.

    Will they want to pay a fee for that advice ? Lets get back to the real world shall we ?

  4. Julian Stevens 14th July 2009 at 5:25 pm

    A protection Waterfall
    Given the FSA’s unquenchable enthusisam for spending millions of pounds of other peoples’ money every year on outside consultation and research exercises, where is Dan Waters’ evidence of any significant degree of protection misselling? Or is it just some fanciful idea dreamt up by yet another pernicious review committee within Canary Wharf? I can recall situations in which I have told clients who have contacted me asking me to arrange extra cover that they are in fact quite adequately covered already and don’t need to be spending any more on insurance. Any IFA worth his salt would readily arrive at exactly the same conclusion in similar circumstances ~ the purpose of FactFinds is to establish and to quantify client needs, not to fabricate them. Once again, the FSA’s default attitude towards advisers, salesmen, call them what you will, is that given half a chance they’re up to no good. I think you’re confusing us, Mr Waters, with certain rather larger institutions, whose track records speak for themselves.

  5. which is the biggest miss-sell
    1) a £10pm policy to a 70 yr old for funeral cover £1000 or 2) a £100pm policy for a married man 2 kids earnng 40k, 150k mortgage. £1m cover

  6. The Biggest Mis-sell
    To answer Viv’s question, it could be either one, neither or both because the circumstances would dictate.

    The 70 year old may not be able to afford £10 p.m. and £1,000 funeral cover may not be sufficient. equally he/she might easily be able to afford it and the policy might be topping up existing cover.

    The married man could be insuring himself for 25 x his income to ensure that his cover is worthwhile in 10 or 15 years time. it might be in anticipation of a future larger mortgage. he might anticipate additional children or he might have an ex-wife, three additional children and two Doberman to support.

    This highlights the perverseness of Dan Waters comments because nothing is simple.

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