The Financial Advice Market Review looks likely to put forward the framework for advice for the next 10 years or more. The call for input asks if the initial focus should be on advice in relation to investing, saving into a pension and taking retirement income. But this raises a significant question for the protection industry: is it happy not to be represented as the future of advice is designed?
It is clear both from the documentation and discussions with the FAMR secretariat that they are considering a very broad definition of advice, including both traditional approaches and new technologies that can be used to help consumers access the advice they need.
Is it better to be treated as out-of-scope by the review and run the risk of processes being redesigned in ways that may not be suitable for providing protection advice? Or can it be argued protection advice is not suffering from the same issues as long-term savings anyway?
This subject was debated by leading representatives of major advice firms, insurers and reinsurers at our recent quarterly Protection Forum. The meeting was in two parts: attendees debated a range of questions arising from the FAMR call for inputs first, and then shared the conclusions with an attendee from the FAMR secretariat to feed into the review process.
While the meeting operates under the Chatham House rule, which means comments cannot be attributed to individual organisations, it is worth sharing the conclusions reached.
It is clear that FAMR is seeking to find a solution to address the advice gap witnessed as a result of the RDR but the regulatory structure for protection is not suffering from the same challenges as the investment industry.
Another part of FAMR’s remit, however, is to look at the demand for financial advice and in this area there are parallels with long-term savings. Recognising this, the discussion focused on how to increase consumer demand for protection advice.
It was agreed that, while protection is good for society, not enough people take advantage of it. Protection can significantly reduce the burden on the Treasury: for example, payments from income protection policies directly reduce the need for disability benefits and the level of universal credit overall.
The Government regularly promotes healthy behaviour and is increasingly starting to promote financial health too. We have all seen the current Workie campaign in support of automatic enrolment, which is designed to reduce pressure on the welfare bill in the long term. Perhaps it would be beneficial for both the Government and the general public if there were a similar advertising campaign nudging people towards self-sufficiency through protection products?
The forum concluded it would be important to ensure protection has some role in FAMR. After all, a lack of protection is likely to create a reliance on the state in terms of benefits far earlier than a lack of long-term savings. It also agreed there should be a requirement that any investment advice process at least validates whether there is adequate protection in place, even if this is only flagged up as an additional need.
On this point, I have yet to see any automated investment advice solution in this country – either live or currently in development – that has a validation point to check whether protection risks are adequately provided. This should be an easy requirement to implement and a valuable consumer protection.
The deadline for responses to the FAMR call for inputs is 22 December. It is an important opportunity to contribute to the process of designing how financial advice will work in the future. Full details can be found here.
Ian McKenna is director of the Finance & Technology Research Centre