Protection advisers may have to tell clients if a premium has been loaded following the FSA’s review of oral disclosure requirements.
Money Marketing first exposed industry division over the practice, where premium rates are inflated to pay distributors and advisers higher commission, in August. In November, the FSA ordered all firms selling stand-alone protection policies to review their sales processes and report back in six months after it found firms failing to comply with Icobs rules on oral disclosure. It is understood that loaded premiums is one of the disclosure issues the FSA is looking to address.
Icobs rule 6.4.2 states that firms must tell clients about all of the policy’s main characteristics, including costs.
The rule states: “A policy’s main characteristics include its significant benefits, its significant exclusions and limitations, its duration and price information.”
Advisers working under Icobs are also required to disclose any fees other than the premium or where a fee cannot be given, the basis for calculating fees.
Plan Money director Peter Chadborn says: “Unless you are prepared to disclose whether you are taking loaded premiums or commission, the message you are sending out is that you have something to hide.
“If a distributor has the ability to negotiate good commercial terms, good luck to them but additional costs should not be transferred to the consumer.”
Personal Touch Financial Services sales and marketing director Dev Malle says: “We will not be loading the premiums for our members to get higher commission levels because ultimately we think it is detrimental to the consumer. Our stance is that the practice should be outlawed.”
The FSA and the Association of British Insurers declined to comment.