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Follow the fireworks code

The quality of protection advice is at risk from he ‘cheap giants’.

In my previous column in this paper I explained some of the reasons why advice in protection will always be open to criticism because it is individually delivered and thus a perfect standard is impossible to maintain; however there is a current market fracture which means that, under present conditions, the quality of protection advice can only worsen.

Currently, protection advisers compete against a growing band of brilliant marketeers whose only marketing mission is to convince consumers that protection is simple and that they are the cheapest. To do this they lead customers down an uncomplicated path to the purchase of term life and CI products without incurring any of the costs of advice. This gives them an unbeatable pricing edge over the advised product and because price is a key driver of any market one can expect these marketeers to gain market share fast.

In any market where one distribution method is much cheaper than the others, the more expensive method fails, and protection advice will thus steadily fail.

This means that the responsible suppliers of product to those cheaper distributors (and those cheaper distributors too) need to ask themselves one key question: Is this of wider benefit or detriment to the consumer?

I like the analogy of cheap fireworks and cheap life insurance. Both look the same, feel the same and by the time you realise you made a wrong buying decision you are in hospital.

Perhaps though in a developed and regulated market like financial services we should expect the new, cheaper entrants, who are gaining this marketing edge, and who are among the most respected retail and insurance brands in the market, to confirm before they expand further that their products and sales methods are not causing consumer detriment.

The ombudsman will tell you if you want to find out where consumer detriment is occurring, just follow the sales boom. I do not think there is a more rapid shift in our market than the current one to web-based buying in protection.

So the big supply and sales players in that boom should be confirming to the market and the regulator that they are not causing consumer detriment. Otherwise, they should stop. It is obvious that these big players are causing real consumers to take bad buying decisions thinking that they have taken good ones. By marketing themselves as the place to buy life insurance but not telling their customers to consider putting it into trust, by only selling lump sum cover and not selling the far better value income-paying version, and by not explaining the many complexities of critical-illness cover, they are causing consumer detriment to almost all who buy from them. Unless these new cheap giants reform their sales process, it is no good criticising advice because advice cannot reform itself when its margins are being destroyed.

I wonder if the leaders of these businesses feel they need to take responsibility for showing that they do not cause consumer detriment? I bet they will not until the FSA forces them to.

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