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FSA revises draft rules on pure protection sales

The FSA has revised its draft rules on when firms should disclose how they get paid for pure protection sales associated with investment advice following industry feedback.

The regulator has published its policy statement on pure protection sales by retail firms, following its earlier consultation paper in March.

In the March paper the FSA consulted on draft rules to be inserted in the Insurance Conduct of Business sourcebook which required retail investment firms to explain how they would be paid for pure protection sales.

Under the draft rules firms would have been expected to disclose commission on pure protection sales if they had agreed an adviser charge with the consumer in the preceding 12 months before the sale, or if the firm was likely to agree an adviser charge with the consumer in the future.

Many respondents felt that more guidance was needed in what the FSA considered to be an associated sale. Respondents also felt it would be difficult for firms to judge when a customer is ’likely to agree’ to paying a fee, as firms cannot be expected to predict what investment advice clients may or may not need in future.

In today’s paper, which are the final rules on protection sales, the FSA says the most appropriate approach will be for firms to judge for themselves when to disclose commission depending on the circumstances.

It says that where an adviser charge has been agreed more than 12 months before the protection sale then the sale is unlikely to be associated with investment advice.

The FSA says: “We have therefore decided to revise the rules consulted on, by introducing a high-level rule that sets out the key requirement to disclose, where sales of pure protection are associated with investment advice.”

The regulator says that it is introducing the requirement to disclose commission to avoid confusion about what the adviser charge covers.

Firms will not be able to avoid the rules by passing customers to a different adviser in the same firm who may only offer pure protection advice.

The FSA says: “We do not consider it appropriate to narrow the disclosure rules to advisers with investment permissions only. For example, a specialist pure protection or mortgage adviser might make an associated sale if an investment advice customer is referred straight to a specialist pure protection adviser in the same office.”

Disclosure rules apply to individual firms, rather across a network. But the FSA expects firms who agree an adviser charge and then refer that client to another firm or appointed representative to consider the risk of the customer misunderstanding that those referred services are included as part of the charge.


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. clear as mud eh, glad someone has thought this through well!!

  2. err…. was that supoossed to clarify and avoid confusion?
    Typical FSA clarity (not)

  3. So I can choose whether to disclose commission.

    But I have to disclose commission if I am also advising on an investment or pension.

    But I don’t have to disclose commission if I am advising on a pension for a company.

    So that’s clear then?

    If this, combined with the other RDR proposals, is a cohesive and well thought out policy then I’m. . .

  4. Only the FSA could make something as simple as disclose of commission on protection(which we have been doing since the mid 1990s)and make it uninteligable.
    Have they got John Prescott advising them on clarity?

  5. glad its not just me doesn’t understand it!

  6. Good grief, what comes out of the FSA policy people appears to depend upon all sorts of things, the day of the week, the weather, the time of the month…

  7. Has someone been on the Sherry??

  8. What! It takes some doing to write a statement like that which is totally unintelligble. I suppose their reasoning behind it is, that whatever we do we’ll fall foul of their rules and cop for a nice fine

  9. PD OFF –

    That’s simply not fair on John Prescott.

    He might well get his words muddled and give an excuse for a giggle, but –

    1) He’d know full well at the outset what he had wnated to say, and

    2) When he’d finished, he might have taken you round the houses to get there, but you’d damn well know what he’d wanted you to hear.

    The FSA on the other hand, have no idea what they want to say, don’t know how to say it, and don’t understand what they’ve said after they’ve said it.

  10. On the evidence here, no-one has a clue what the FSA wants us to do.

    Does the FSA know what it wants us to do ?

    Mind you – it may be the reportage that is at fault rather than the FSA. Does anyone else want to believe that possibility ?

  11. Crazy gang IFA member 25th September 2010 at 8:19 pm

    Ridiculous! Why do we put up with this ?? Surely we deserve better!!

  12. Incompetent Regulators Awards Team 28th September 2010 at 4:45 pm

    They’ve really lost the plot!

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