The retail distribution review saga has stretched over a long time but we should never forget the decisions being taken will have a fundamental effect on the industry. Like most edicts from the FSA, I take most notice of the impacts on protection and the announcement at the end of March was highly significant.
It seems to me that the FSA, to its credit, has been listening closely and researching intelligently, given the conclusions they have come to. I see no alternative other than the retention of commission as the way to reward an adviser for a protection sale and believe this paper is an important affirmation of that.
I think it is really worth quoting and examining what the FSA were saying in this paper. Note their comments carefully. These were made about the sales of critical-illness and income protection policies.
Too many consumers have a limited and incorrect understanding of the cover and other features of their policies. This creates a significant risk of poor outcomes. In our research work, we found a common failing among advisers was inadequate explanation of the extent and limitations of cover. We will be publishing a summary of our findings. Our priorities now for pure protection are to deal with these issues and we recognise that they will not be addressed by introducing a new labelling regime.
These are very significant remarks because they underline two very important facts which have not been given the prominence they should have been.
First, consumers do not always understand what they are buying when they are sold critical-illness cover. They think this is the best option to provide for them if they become ill. It is not, at least not on its own. They are sold critical-illness cover when they should often be sold income protection.
Second, there is a clear implication that some advisers favour CI over IP when it is not the right option. Is this the result of inadequate training, relative ease of sale or personal preference? At this stage, we do not know.
But something fundamental is happening here far too often. Despite decades of reciting mantras about customer need, we still try to give people a product that is an easier sale. The windfall element of CI and some of the large sums involved are important tools but they should not deflect people from buying the product they most need, not what it is convenient for the adviser to sell them.
Admittedly, a lot of companies do not make income protection very easy to buy or sell and great improvement is needed here. Nevertheless, wrong advice cannot be tolerated and this is what the FSA has found is being given. This is a big priority for our industry to address.
Peter Le Beau is managing director of Le Beau Visage