View more on these topics

Ian McKenna: Why Govt must bring protection into scope of advice review

Ian-McKenna-in-2013-700.jpg

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

Recommended

1

Tony Wickenden: Getting to grips with the residence nil-rate band

Over the past couple of weeks I have been comparing pension-related headlines with the reality of the legislation supporting them and discovering some pretty big differences. Another misleading headline is the one that claims no couple with a combined estate of less than £1m should have to pay inheritance tax. There is detail to consider. What […]

Gordon_Brown
1

Former PM Gordon Brown to join Pimco

Former prime minister Gordon Brown is to join the board of asset manager Pimco as an adviser. He will attend board meetings – chaired by former Federal Reserve chairman Ben Bernanke – and make a speech at the firm’s annual ‘secular forum’, the Financial Times reports. Pimco would not disclose how much it will pay […]

FCA logo new 3 620x430
15

FCA hikes adviser cap-ad requirements

The FCA will increase the minimum capital adequacy requirements for adviser firms to £20,000 from June next year. Following a consultation on changing the capital resources requirements for firms offering investment advice, the FCA has confirmed it will hike the minimum requirement from the current £10,000 to £20,000 by 30 June 2016. The new rules mean advisers […]

FCA logo new 3 620x430
5

FCA eyes enforcement over wealth manager failings

Wealth managers are failing clients on suitability, with two-thirds of firms falling short of the FCA’s expectations, a thematic review has found. The FCA is considering enforcement action against five of the 15 firms it reviewed as they need to undertake “significant remediation programmes to raise standards”. The regulator is also considering forcing the firms to […]

Unfinished business?

Pension specialist Fiona Tait gives an update on three big announcements from the 2016 Budget – Pensions Advice Allowance (PAA), the Lifetime ISA (LISA) and the pension dashboard. £500 Pensions Advice Allowance What’s new Under current rules it is possible to deduct an adviser charge from a defined contribution pension fund to pay for financial […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. I have already fed this back to the FAMR. Protection underwrites everything a client does and in particular capacity for loss. A fact that is conveniently overlooked with this cliché charged tick box flavour of the month theme. How can you test capacity for loss without checking protection and employment situation for example?
    My impression is that some of the categories in the FAMR Call for Input paper are too simplistic – I know some people who are starting out and striving in the late 40s!

  2. As someone present at the meeting if was very encouraging to hear a regulator asking just how important protection advice was to the vast majority of customers. Whatever the advice subject is , protection is clearly integral and thus the gap that normal people are unfortunately encountering must address this. We as advisers have a responsibility and let’s not forget how the majority of us built our client banks. The advice gap is our issue as much as the regulators.

Leave a comment