Speaking at the Personal Finance Society retail distribution review conference last week, FSA director of retail policy and conduct risk Dan Waters said attitudes from some quarters of the industry had only confirmed the need to review whether RDR proposals should be applied to protection products.
He said: “In our consultation paper, we have identified a risk that introducing adviser-charging for investment products may lead advisers to focus on protection, where they might still earn commission.
“Some of the reported reactions to this analysis seem to suggest that it is difficult to missell 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 is no big deal.
“We are alarmed by the apparent complacency in some quarters. The prevalence of such attitudes would only confirm to us that we need to review our approach.”
Waters said it is “unacceptable” to recommend to a customer a policy or level of cover that they don’t need.
Highclere Financial Service partner Alan Lakey says Waters is “an armchair theorist who is causing chaos”.
He says: “We have got a £2.3tn protection gap in this country and the FSA is going to widen that further into a great big chasm. There is a limited danger of protection being missold but that is on the periphery of the market. What we are saying as an industry is that you cannot generally overinsure. The scope for loss is nowhere near what it is in the pension and investment markets. This part of the industry should be left alone.”
CBK Colchester principal Peter Chadborn says: “I agree that if someone is sold the wrong policy it is a problem and if people are sold too much cover, that is a minor problem. But surely getting more cover for people who do not have enough or do not have any protection should be encouraged and that would happen if more people were selling protection. That is the message from the industry.”
Waters also told delegates that firms must construct and use model portfolios carefully to make sure advice remains genuinely independent.
He said: “We accept that creating a well researched, frequently updated panel for front-line advisers to use can be one way of delivering independent advice. Our draft rules state a client should not be materially disadvantaged by use of a panel and it is easy to envisage how a poorly researched panel, reviewed infrequently, could lead to a poor outcome for a client.”