The regulator puts this down to the fact that IFAs tend to advise people on higher incomes who are less likely to cancel their policies due to financial constraints. It also points out that because IFAs search the whole of market their clients are more likely to purchase appropriate products.
But the report says persistency levels for IFAs have been falling more rapidly in recent years due to the rise in the proportion of group personal pensions business.
The document states: “For most policy types, the persistency for business from IFAs is better than that for company representatives, except in the case of personal pensions. It is noticeable that the IFA persistency has been falling more rapidly. Partially, this can be explained by the higher proportion of policies written for groups of employees.”
Despite a slight rise last year from 40.6 per cent to 43.6 per cent over four years, personal pensions are still the products with the lowest persistency levels for IFAs.
The small increase edges IFA’s ahead of company representatives whose persistency levels fell from 45.1 per cent to 43.5 per cent over four years although for the 12 month figure single tied advisers beat IFAs 82.8 per cent to 82.3 per cent.
But the FSA says low persistency for personal pensions policies was “not unexpected” due to the increase in sales of GPPs. It says group policies will inevitably lapse when people change jobs.
That said, it points out that there has been a significant fall in the persistency of group personal pensions. The four-year figure fell from 55.1 per cent for policies written in 1996 to 41.7 per cent for policies written in 2003.
IFAs has the highest persistency levels for whole of life policies last year – 82.7 per cent up from 81.3 per cent. But company representatives’ four year persistency also increased from 77.3 per cent to 79.7 per cent.
IFA’s had higher persistency for other life policies too – jumping from 64.2 per cent for policies written in 2002 to 67.5 per cent for policies bought in 2003. Meanwhile company representatives dropped from 50 per cent to 47.8 per cent.