Firms looking at moving into the direct to consumer market have been warned of the significant impact of European rules which would require them to carry out an appropriateness test on non-advised sales.
Ongoing negotiations by the European Parliament and the Council of the European Union are aiming to strengthen consumer protection for retail investment products via a legislative package of reforms.
One of these reforms is the Insurance Mediation Directive 2, which mainly covers insurance products, but also insurance investment-linked products such as bonds and with-profits. Based on the outcome of ongoing discussions and the final version of the rules, IMD 2 could also be extended to pensions and annuities.
Within IMD 2, article 25 states that for non-advised sales, information must be obtained about a customer’s knowledge and experience to determine the product’s appropriateness. The customer must be warned where a product is not considered appropriate.
Pinsent Masons partner Bruno Geiringer says: “Firms that are now looking to sell direct have not quite woken up to the fact they may have to deal with an appropriateness test. This is a bit of a trojan horse and it is not being taken seriously.”
SJ Berwin financial markets partner Tim Dolan says: “The burden is quite high on making sure the product is appropriate, and ultimately the burden will be on firms to decide how they demonstrate they have sufficient information about the customer’s understanding of the product.”
Royal London recently announced it plans to launch a D2C proposition. Head of corporate affairs Gareth Evans says: “An appropriate test might be quite difficult to evidence. There is a lot to play for here and I hope common sense will prevail.”
Aviva and Standard Life, which have also signalled plans to sell direct, declined to comment.