Over the past 18 months, Positive Solutions has been approached by providers and advisers alike asking the question: “Do you do non-regulated or ABI code product sales?” In other words, things such as term and mortgage term through a non-regulated agency. Our answer has always been no. Clearly, this is against the trend. Some pro-viders have even said we are foolish or missing out.
Our explanation for refusing to touch this type of business is based on several factors, some of which are peculiar to the way we operate, others more to do with our stance on regulation and what it means to be an IFA.
The most fundamental of these is our sincere belief that clients need face-to-face advice from independent advisers. It is really that simple. We also happen to believe that all people engaged in activities involving money should be regulated.
History (which has a nasty habit of repeating itself) has shown us that whenever shortcuts are used to “get around” compliance, there is invariably a sorry ending just around the corner.
We simply cannot always rely on the providers to ensure that the client gets the right product. Providers are, after all, concerned with more immediate matters such as the survival of their companies – or at least short-term gains in market share – rather than the long-term impact on a client whose policy may not pay out or who may not be able to afford big increases in their non-guaranteed rates. History is the reason why we, the IFA distributors, have ended up paying huge increases in fees, levies and PII.
But we are not doomed to repeat history. We do have a choice. High-quality advisers and organisations have little to fear from compliance on protection products and the client has much to gain. The individual RI still has a choice, even if the organisation they are currently with has not. You do not have to be a lemming.
First, just because others are doing something does not mean it is the right thing to do (as lemmings ultimately discover). Others have sold lots of products we have not in the past and some have paid the price – sometimes even losing their companies.
If distributors blindly followed manufacturers on everything, you could have all sorts of misselling problems. Product providers spend a lot of money on marketing but one thing is certain – Positive Solutions does not look to the manufacturing community for moral or commercial guidance on, well, anything.
We have had the benefit of observing them chasing market share for over 20 years. We have seen the results which is, of course, the real reason for all of us having to be regulated now.
Second, companies (and by this I mean distributors, not manufacturers) have to do what they think is best for their clients and thus indirectly for themselves. Yet in some distributors, the decision is forced upon them. If a big proportion of your members are placing business with other providers via the non-reg route, then you are under pressure to go with the flow.
In some cases, where several providers each have 9.9 per cent stakes in a distributor as a precursor to multi-tying, those companies apparently want to set up multi-tied protection companies right now.
Why don't we at Positive Solutions follow this route? Well, let us examine what some of this protection business is about. From the point of view of the client (remember them?), the product they get has exactly the same charges as if they bought it via a route which was regulated by the FSA. So there are no advantages to the client via the non-regulated route.
In fact, there is a major disadvantage – the client is deprived of the right to refer any future complaint to the Financial Ombudsman Service if they feel that they have been missold the plan.
So, if there are no advantages to the client, who is gaining and why? Well, for IFAs who still have to cope with cumbersome paper-based business submission systems, non-reg business has an appealing simplicity. Fortunately, at Positive Solutions, we have electronic systems that make such excuses redundant.
No, the people who really benefit are the product providers. They are pushing products down a channel where it is not clear that any type of compliance is being carried out. Anyone can get an agency with some of these networks – there are no checks regarding background or expertise of the individual agent.
So much for raising standards. They gain by conserving or increasing production. Frankly, some hard questions need to be asked about why clients have suddenly discovered they need new life and critical-illness cover.
A cynic would say that in a period where the rates for both products have increased, the natural thing would have been for sales to stay as they were or worsen. The like-for-like product is now more expensive so either a new generation of protection-friendly clients has been pestering advisers for policies or (whisper it softly) the client is now being switched from guaranteed rates and comprehensive CI to non-guaranteed or whatever. But because of the lack of regulation and checking, who is to know?
Frankly, we do not want to be in that sort of business and neither should you if you know anything about history – or lemmings.
David Harrison is chief executive of Positive Solutions