The Financial Conduct Authority’s thematic review of price comparison sites will be welcome news to many advisers.
In little more than a decade, they have decimated traditional distribution in the personal lines insurance market and catalysed consumer behaviour that has seen the average lifetime of some GI products fall from seven years to 15 months. Comparison sites are also beginning to have an increasing impact on the life insurance and investment market.
From the wording of the announcement from the FCA, it is unclear if the review will include life insurance products, the vast majority of which, that is, those without an investment element, fall under GI permissions. The announcement makes specific reference to motor, household and travel contracts but mention of life cover is conspicuously absent.
I have heard many in the industry comment that this review is not before time, a sentiment with which to some extent I would agree but I think this review is further evidence that the FCA is being run very differently to its predecessor.
Last week we saw an admission from the FCA that the RMAR processes place a significant and perhaps excessive burden on advisers and issued new guidance. Such candour would have been unthinkable under the old regime.
Seen in this context, I believe the FCA should be applauded for getting to grips with price comparison services so soon. That said, I am concerned that the remit of this study may be too narrow.
It is increasingly recognised in the industry that non-advised annuities are the next misselling scandal waiting to happen. Life companies are rightly setting up their own operations to offer a wider range of options to consumers upon annuitisation and a long list of organisations from banks and building societies downwards are seeing an opportunity to participate in the bonanza from the wall of money that is maturing retirement accounts.
It is not an exaggeration to say that such services will be as easy to buy as a copy of OK magazine at the supermarket checkout.
The scope of the review of price comparison sites will include many issues that are equally relevant to other non- advised channels. The FCA has highlighted the potential for online services to play a role in addressing the advice gap. Price comparison sites clearly have a part to play but so do other channels.
As I have said repeatedly in recent months, greater regulatory clarity could expand the scope. If the thematic review included both investment products and other non-advised channels it could provide an excellent opportunity to address this situation.
One of the most important questions being highlighted as part of the review is, does lowest cost always mean best?
This is not rocket science. If you are looking for protection from the weather, do you want a cheap umbrella that will turn inside out at the slightest gust of wind or a sturdier item which may have a far longer lifetime?
If you are buying car insurance, do you want an insurer which will expedite repairs or one that will require multiple quotations. When it comes to life cover,
do you want an insurer which will define its terms and conditions in a few clear paragraphs or one where each condition involves many lengthy paragraphs
of small print?
The chances are such issues will largely be defined by personal taste and affordability but the populist clamour from politicians and those claiming to be consumer champions has the potential to adversely affect consumer outcomes. Do we really want to be in an industry where we are all offering Ryanair-style financial products? Of course, price is important but it is not the only measure. How can we help consumers identify value?
At this point, I must declare an interest as F&TRC has spent much of the last two years building the Quality Analyser tools which will shortly be available to advisers to use free of charge via the AdviserSoftware.com site.
It has been created to help advisers measure the quality of contacts, including protection products such as life, critical- illness and income protection to corporate offerings covering auto-enrolment services, group pensions and master trusts and overall workplace savings propositions. While these tools were and are designed to help professional advisers, the question I am currently being asked more than any other is could they be deployed to compliment consumer-facing price comparison services. We do plan to develop these further so that they can be used with advisers’ websites.
Although I know many will disagree, my perspective is that price comparison services are an important part of the evolution of financial product intermediation and distribution. I believe they can play a valuable role for many consumers. In the long-term savings market, these will typically be consumers who in a post-RDR world will not be willing to explicitly pay for financial advice but who do nonetheless need help and guidance.
The clarity that should emerge from a thematic review and subsequent guidance should put price comparison services in a strong position to further evolve their role. Extending the scope to include all non-advised channels presents a chance to maximise the opportunity to address the advice gap.
Many of the misselling scandals of the last 25 years have been predictable and could have been substantially circumvented, if not avoided, by more informed pre-emptive regulatory action. The FCA has shown an appetite for dealing with issues the previous regulator failed to address. Considering non-advised annuity sales within the scope of price comparison reviews offers a further opportunity to show the wind of change blowing through the regulatory landscape.
Ian McKenna is director of the Finance & Technology Research Centre