Tom Baigrie recently argued against customers being able to buy protection on a non-advised, self-directed or execution-only basis and suggested that in some way the FSA needed to act (Money Marketing, June 10). He said he is keen for debate. So here goes, Tom, this is the other side of the coin.
My company's position is one of providing choice and allowing the many self-directed customers a way of buying easily and conveniently from us while supporting those who want advice. The key to execution-only transactions lies in maintaining strict standards so customers do not believe they are getting advice when, in fact, they are not.
Our business distributes protection products through a number of channels. We support customers who want to buy products without speaking to an adviser through our direct operation and we also power others including consumer financial portals, high-profile direct-marketing general insurers and a few internet specialists.
We also support phone-to-phone and face-to-face advisers, including mortgage specialists, building society branches, independent general insurance brokers, estate agents, IFAs and advisers that have applied to become our appointed representatives. Our perspective on the issues raised by Tom is therefore rather unique.
Tom argues against consumers being allowed to buy without advice but appears not to recognise that a lot of customers are happy to divorce advice from the purchase.
Buying life or any other insurance or financial product is not something we do day in, day out, like buying Tom's baked beans. It is something we do infrequently and it is my experience that the less frequently we buy things, the more research we tend to do before buying. By doing this we become informed. I would contend that those who appear to be self-directed or execution-only customers are probably as well informed as any, having researched their decision by going online, reading papers or talking to advisers or experienced friends.
I believe Tom already knows this and that his concern has more to do with a suspicion that many of those he advises end up buying from supermarkets and other direct operations. This is not an issue simply for his business, it should be of concern to all advisers but it is not a problem likely to be solved by regulation.
The problem is not unique to financial services, it affects other retailers. Exchange & Mart used to encourage this behaviour with a strapline that went something like: “Go down the shops, work out what you want and then see if it's any cheaper through Exchange & Mart.” Exchange & Mart was simply reinforcing a behaviour it had identified as being common to many consumers.
Are self-directed or execution-only customers buying too little protection? I would like to share some research, published in Swiss Re's Life & Health Report this week, in the hope that I can encourage others to focus on what is really important – delivering to genuine requirements.
“It may be the case that those who buy are well-informed up-market consumers who are aware of their needs and find solutions to meet those needs. Direct Life and Pensions/Lifequote, a leading protection distributor operating both with and without advice, shared with us its analysis of over 50,000 policy completions. This showed that while there is no significant difference in the average initial sum insured on mortgage protection business, the average sum insured on level term, taken out for family rather than loan protection, is 60 per cent higher on bought business than it is on sold. A substantial proportion of this population is the area of the market that is most confident, at least as far as buying term insurance is concerned. It is, however, a market whose needs have hitherto largely ignored by life offices. Hence the success of supermarkets and discount brokers.”
The report also says: “Not that it should be automatically assumed that professional advisers are always better at determining an appropriate level of cover than individuals. After all, more than half the population does not have a protection gap at all and these are by no means more likely to have sought advice.”
Consumer behaviour can mystify the best of us at the best of times. I believe it is better to observe it, understand it and fulfil its needs and demands rather than attempt to regulate how a customer has to behave.
Richard Verdin is sales & marketing director of Direct Life & Pensions