After years of feeling ignored by the regulator, the FSA now appears to have protection in its sights and is carrying out work to see if any of the retail distribution review proposals should apply to this area.
In its recent RDR consultation paper, the FSA expressed its concern about the possible effect of investment advisers focusing on protection post-RDR as a way of continuing to be paid by commission. This angered many in the protection industry who were upset the FSA’s negative view failed to recognise that protection advice works in a very different way to investment advice as well not appreciating the need to address the estimated £2.3tn protection gap.
Many comments rightly centred on the fact that the same biases the FSA is trying to tackle in the investment market do not apply to protection and that worries about consumer detriment should be considered alongside the greater consumer detriment caused by not enough protection policies being sold.
At last week’s Personal Finance Society RDR conference, Waters warned the industry he is unhappy with comments suggesting that protection is difficult to missell and that no serious consumer detriment can arise.
Many of the arguments Waters is referring to do not come from blinkered product-pushers but from individuals who passionately believe in the value of protection and are concerned about the social damage caused by the protection gap.
The industry is worried that any attack on protection commission could be hugely damaging to consumers.
There may be minor potential consumer detriment issues around being sold too much income protection, critical illness or life cover but they are eclipsed by the positives that would be created by more advisers focusing on protection.
The FSA’s Icob rules already keep a tight rein on the market and it is very difficult to see the need for any meddling with remuneration in this area.
The FSA says it understands the real differences between the investment and protection markets. Let us hope this is truly the case and that any concerns the FSA may have about people being sold too much cover are put into proper context.