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FSA faces protection backlash

Protection experts have hit out at the FSA after it suggested the number of investment advisers selling protection products in order to bypass the commission ban could soar following the release of its RDR consultation paper last week.

Collectively, panellists and delegates at this year’s Protection Review conference in London criticised the FSA’s concerns that the pure protection market could attract a disproportionate number of investment advisers looking to maintain commission-based sales by selling protection.

They said an increase in protection sales is not likely to cause consumer detriment but only enhance the market and help close the current £2.3trn protection gap.

Speaking at the conference last week, Friends Provident chief executive Trevor Matthews said there can be no serious consumer detriment from selling more life and protection business, therefore the FSA should not extend RDR to embrace protection.

He said: “I think this is completely the wrong idea. There cannot be any serious consumer detriment by selling more life insurance, income protection and protection products. I think everyone in this room should be arguing strongly not to extend adviser charging to protection products.”

Likewise, Pru Protect director of protection Kevin Carr said it is very difficult to mis-sell protection products, suggesting the FSA’s intentions are misplaced.

He said: “If other advisory parts of the market are given encouragement to sell protection, then that is something we would all welcome.

“I believe it is difficult to mis-sell or oversell protection. If someone has got too much critical illness cover is that really such a bad thing? The worse that can really happen is you can sell income protection to someone who already has it through their employer.”

Delegate Highclere Financial Services partner Alan Lakey said the concerns are “intrinsically bizarre”. He said: “The FSA is out of touch with the reality that products need to be sold.”

However, the FSA in its ‘Delivering the RDR’ statement said these risks seem “sufficient” enough for the regulator to review closely whether changes are needed in its regulatory approach to pure protection markets to ensure new forms of consumer detriment do not arise from implementation of RDR.

In the mean time, however, it said: “We are not bringing forward any proposals for the sale of pure protection products at this stage, but will take account of comments and evidence provided by respondents to this consultation paper.”

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There are 23 comments at the moment, we would love to hear your opinion too.

  1. Yvonne Goodwin 30th June 2009 at 5:18 pm

    This is real life
    How many other advisers have come across new clients where they have so much life cover that it actually causes them an IHT problem, or partners in a business where the adviser has sorted out the cover but not bothered with the Trust wordings, option agreements etc.

  2. Agree with Yvonne!
    I agree with most of the seniment expressed in the article but I also agree with Yvonne (comment 1). Yes there needs to be more clients covered and closing the protection gap is a good thing but only if it is done right. Advisers switching from mortgages to buy to let to circumvent regulation was a bad thing given the current climate and the number of repossessions I see of amateur buy to let landlords sold a product and given no advice. The FSA should create a level playing field and adviser charges should be for all or for none.

  3. On the Other Hand …
    Oh, the optimism! ” … there can be no serious consumer detriment from selling more life and protection business …”; ” … it is very difficult to mis-sell protection products”; “I believe it is difficult to mis-sell or oversell protection …”. This wasn’t the conclusion of the PPI review!

  4. deluded….
    Overselling protection?….. Why is there a protection gap then?…. If the FSA go for a fee based approach to protection then the gap will rocket… The vast majority of people will no go for cover if faced with a £400 bill to arrange it….of course the Banks and Insurers will love it, their profit is in the rates so they will just fine thanks… as for PPI miselling who did most of that?I wonder

  5. Difficult to over advise, easy to sell
    I agre with Yvonne’s point about how many people are SOLD the protection with none of the important bits to go with it, i.e. the IHT and Trusts to do it properly. You don’t miss those things out when you advise as if you do that’s your PI premiums through the roof and you are probably out of business very quicly as a result. It is those that sell rather than advise(don’t need PI then do you) that are the problem.
    Nothing wrong with earning for the advice you give and with pure protection if the FSA want to get rid of commission, they’ll need to replace it with a viable factoring alternative as advice COSTS money, but can SAVE massively more than it costs if done correctly for the client.

  6. Totally Barmy
    I think the FSA has at last admitted that a consumer is more likely to purchase any financial product if they do not have to pay for the advice in association with it. They are now perceiving it to be a problem if more consumers protect their families against financial loss if the breadwinner experiance redundancy and illness. I think it is about time that the regulator regulates itself out of business!

  7. FSA and reality…now there’s a thought
    One of the supposed aims of the RDR was to rid the business of provider and/or product bias. Recent surveys have shown that the majority of advisers sell the cheapest product even though industry experts opt for best value products. If we accept this as being the case the potential for bias does not exist. Clients do not buy more protection than they need and one of the sad inferences of the RDR proposals is that they are so thick that they can be manipulated by wicked advisers. This viewpoint is not only incorrect but dangerous as it sets up the industry for yet more needless regulation.

  8. FSA RDR protection backlash
    The FSA simply underlines just how out of touch with reality it actually is. It should look at itself and consider whether it can justify its own existence. Bureaucrats, jobsworths, cronies and morons all ganging together to pontificate on matters it doesn’t have a clue about. If Canary Wharf were ‘nuked’ tomorrow, no-one would be any worse off – indeed, consumers would no longer be forced to pay the cost of the FSA’s bloated budget.

    If this doesn’t show exactly why NO-ONE in the FSA could ever be capable of becoming an IFA, then nothing does.They get exhorbitant salaries for coming out with absolute gibberish that a child could better. How do these people ever get into these positions whereby they can concoct such nonsense – in any other industry they wouldn’t get short-listed for even the most menial jobs let alone setting policy for the whole Financial Services Industry. Maybe, taking the down-to-earth industry training film , ‘The Widow’s Story’ into account, we should then arrange for a member of the FSA heirarchy to deliver the cheque to the widow after the funeral, whilst enquring as to wether she really felt that the advice given by the Adviser was actually up to scratch or does she feel she’ll like to complain for being stitched-up? Like all unimportant ‘top-dogs’, if they fell off the face of the earth would we miss them? Probably not.

  10. Trusts
    Life companies are making trusts easier and easier to complete so really now there is no excuse not to do it if appropriate. This service also has no effect on the premium as it costs no extra to place the case in trust.

  11. It is About Time the FSA is Disbanded
    Since the advent of regulators in the Financial Services Industry, they have had one overiding issue and that is to drive down the cost of purchasing products, which in turn has driven down the remuneration of advisers, which again in turn has depleted the number of advisers in the UK, all for the benefit of the consumer. Since regulation has been introduced we have seen the demise of the ‘Insurance Agent’ – the Man from the Pru, Pearl, CIS, etc., and Industrial Branch savings plans. With these guys servicing their clients, people had a disciplined savings habit, protection plans were sold for the right purpose and the amount of debt in the UK was quite minimal. Since the demise of the Insurance Agent savings has gone down, we have a huge pensions gap, a huge protection gap and huge personal debt, all thanks to the FSA and their PCing of our industry. Commission is not a bad thing, for people who cannot afford fees it is a good thing as they are not stupid to realise that you get paid for selling a product. Frankly I am sick to death of this industry now thanks to the FSA, I have been in the industry for 24 years, am currently 43 years old and have a young family, yet if somebody offered to buy my business I would sell immmediately.

  12. I told you so
    some 12-18 months ago I logged in to an online RDR debate. I put a question along the lines of “who will write all the protection business if commission is scrapped…….the banks?” It was somewhat shot down by the panel and I especially remember a spokesperson for IFA’s saying that IFA’s dont need to scrabble around for the odd £40 protection policy! In light of the current economic market I believe many IFA’s have returned to “selling” insurance to keep the business afloat, so, can we afford for this income stream to be taken away? A few days ago a client bumped into me at the school fete. He said “you wont need to visit my business partner for that income protection policy, he had a stroke while driving and will be off work for at least 6 months”. How guilty did I feel? I should have “sold” the benefits more strongly.

  13. Protection Backlash
    When were the FSA ever accused of allowing customers best interests to get in the way of persecuting the IFA community? Remember that official figures show that IFA’s are responsible for 4% of customer complaints. That indicates that consumers are generally very well advised by IFA’s. It would be very interesting for an investigative reporter to dig deep and see just how far the “lobbying” by the Banks goes.

  14. Why did you not manage to convince me??
    Viv, I hope they do not sue you for not using more hardselling tackticks to buy the protection! The only situation that having adequate protection and suitable trusts can become a ‘problem’ is if the chancellors come up with even more damaging tax proposals of the schemes. The more and more absurd tax rules of IHT & trusts and now he is tinkering round with pension tax relief, leave none of us safe, as the FSA seems to think that we should have factored this in already when advicing clients.

  15. Surely the whole point!?
    If someone has got too much critical illness cover is that really such a bad thing? The worse that can really happen is you can sell income protection to someone who already has it through their employer.”

    Yes – thereby wasting their hard earned money by selling them something they don’t need. Surely the whole point of protecting the consumer?

  16. Protection Backlash
    Once again, the FSA has impugned the professionalism and integrity of all IFA’s by suggesting that the only reason they would place more protection business is to support their profit margins. This is the real issue underlying the big RDR red herring that is commission, and emphasises the FSA’s attitude(which they don’t exactly try to hide) that all IFA’s are basically crooks! Commission puts advice within the reach of ordinary people who do not have the disposable income to pay fees and (hopefully) keeps them out of the clutches of the banks and the direct sales arms of the large insurers. The only way for the RDR to create a level playing field for the customer would be for all sales costs to be stripped out of all products, including those that are directly sold – bank staff, sales people and telephone call centre staff all have to be paid for somehow, and just because commision is easier to identify doesn’t mean that getting rid of it would produce a fairer outcome.

  17. Protection – RDR
    Yes, I can envisage thousands of widows running back from their husband’s graveside to submit a mis-selling claim to FOS after being handed a cheque for several thousand pounds by the insurance company.

    Clearly, they would rather have to sell a house they can no longer afford to live in; their children to forego a University education; and themselves get a job on a Supermarket till to make ends meet than be mis-sold protection

    However, I hope the protection salesmen gen up on Trusts, because a claim for avoidable IHT by a deceased’s children could be expensive.

  18. SIMON MANSELL 1st July 2009 at 1:35 pm

    FSA prefers DHSS benefits to life cover!
    Yes I tend to also take the view that you can do very little harm to a consumer if you protect his widow and orphans. May be the FSA would prefer those same widows & orphans to be DHSS statistics, after all it seem half of the UK population are on benefits – Lord knows where the money comes from?


  19. SIMON MANSELL 1st July 2009 at 1:41 pm

    A commnet about anonymous comments!
    Just a comment on the large number of anonymous comments.

    This regulator has instilled so much fear in those it regulates that many now fear open and free debate.

    I say put your name forward as many in the past have put their lives forward for your right to this freedom!

  20. SIMON MANSELL 1st July 2009 at 1:47 pm

    “If I had my way I would write the word “Insure” upon the door of every cottage and upon the blotting book of every public man, because I am convinced for sacrifices which are inconceivably small, families and estates can be protected against catastrophes which would otherwise smash them up forever. “

    Winston S Churchill

  21. alastair lyon 1st July 2009 at 3:50 pm

    FSA faces protection backlash
    Isn,t it all a bit sick. These big companies who can choose to wield considerable influence have lain down and got tramples over, and more to the point failed to work with the IFA community countless times in past reguloatory upheavals.

    now all of a sudeen they suddenly see how their business will be threatened wow, St Paul and damascus come to mind, but I suppose we muts welcome them to the party, even though it is probably now too late to use trheir influence to any great effect

  22. Life Cover 15X Income
    I have a compliance document that suggests:Life cover 15X income, critical illness = loans, income protection 50% of salary. I think we have a long way to go in the UK before Joe Public takes on more protection than he needs. Perhaps the FSA would like to put forward its own suggestions or would they rather hang back and regulate retrospectively – and yes this is anonymous and yes the regulators put the fear of god into me!

  23. FSA does not equal protection
    I find it quite biazarre that an institution that is immune from the economy, swallows money like no tomorrow and is supposed to know what they are doing is so out of touch with the protection industry. And to ask an industry group who are looking at ways to promote protection to re-write their own consumer website says it all. The FSA talks all about consumer detriment. Its their costs that are to the detriment of the consumer

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