A few weeks ago, I addressed the head of the FSA’s retail distribution review and others at the Cicero RDR conference. I explained some of the arguments this column has discussed since I realised in 2004 that a key threat to the growth and success of advice in financial services was the near unregulated growth and success of non-advised selling in financial services. The advent of RDR has crystallised that threat by considering a huge raft of change that advisers will have to cope with while non-advisers will face no such cost of change.
As the Government has proved in causing the demise of final-salary pension schemes, if you regulate the good to perfection, the bad take over the market. That is already demonstrated by the retreat of advice from the mass market and its replacement by those who sell but do not advise.
This takeover is made easier by confusing FSA jargon. Non-advisers are just sellers but do not have to say so. They do not have any duty to check suitability but do not have to say so. Even if they did, no consumer would readily understand what that meant. Sellers can easily use FSA-speak to confuse normal consumers into believing they are getting the same service as they would from an adviser but for less cost.
Without that consumer understanding of the difference between advice and sales, advice has become devalued among all but the most wise of consumers. So in my talk, I challenged the FSA to promote and support advice as better for consumers before it seeks to perfect its outcomes. We shall see. To encourage the FSA to consider making this effort, may I demonstrate just how the sly cleverness of the salesman is still alive and well in non-advised UK financial services.
The payment protection insurance market is hugely profitable although sales are shrinking somewhat in the face of pressure from the Office of Fair Trading and belatedly the FSA. I am told that current premium rates on PPI and accident, sickness and unemployment benefit depend on it being sold to many who cannot claim. If it is only sold to those it should be sold to, it needs to become dramatically more expensive.
So the search goes on for the gullible but the new target is not those who cannot claim but rather those who should have a better type of policy but who can be seduced from that path by the simplicity of applying for PPI. The better policy is known as income protection and, as you will know, it should be the first consideration of anyone trying to protect themselves and family against the financial effects of personal disaster. Today, if you type those words into a web search engine, you get pages full of income protection adverts actually selling various types of PPI.
The sharp sellers have realised they can pass off their product as income protection and sell it to innocent clients as if it was the proper thing. That will be bad for consumers but good for sellers as those suited by income protection have relatively low claim rates. Trebles all round, as Private Eye would say.
The financial promotions team at the FSA could stop this but I suspect they have little stomach for the fight. How can we convince the FSA that it is high time the sellers were sorted out?
Tom Baigrie is managing director at Lifesearch