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Richard Verdin on protection

As we look ahead to the regulation of non-investment pure protection products, what has the practitioner got to fear, if anything?

I am sure the majority of IFAs who have been in the industry for five years or more will have at some point treated simple term products as if they were regulated. This is because providers categorised the products as regulated to adhere to Lautro rules. These rules were later adopted by the PIA for providers. Fimbra, on the other hand, did not treat term as a regulated product and the PIA adopted its rules for IFAs. This inevitably resulted in confusion and, as a result, most IFAs opted for the safer option.

A few years ago, a small number of providers applied for a rule waiver and the whole non-regulated phenomena was born. Now the rules are changing again, so a little looking forward and back may not be a bad thing.

I have heard some people say they have nothing to fear as long as they do things properly and give good advice. My response is to go and tell that to the mortgage and investment advisers who, to the best of their knowledge, training and experience, were doing things properly and giving good advice right up until the economy changed course and the ombudsman applied a different set of rules to the ones they thought they were playing by.

Today, businesses are springing up from nowhere to pursue every possible prospect of a complaint and extremely well-paid consumerists are queuing up to present one-sided retrospectives. I think it pays to be cautious and a bit of a sceptic.

Where are the pitfalls for advisers? The following are some potential accusations that might be made by clients. However, they can all be guarded against. The point is to make sure that you do.

•”You didn&#39t sell me enough critical illness to cover all my financial needs. Why not?” •”My children and I cannot live on the amount of life insurance you sold my husband. When he moved jobs, his death-in-service cover was lost. Why didn&#39t you advise us to review our cover if he ever changed jobs?” •”My husband died of a heart attack on his way to the hospital. Why didn&#39t you include life cover as part of his critical-illness policy? My new adviser says you should have and, in fact, it would have been cheaper.”

•”My payment protection insurer will not pay my mortgage because of what it calls a pre-existing condition. I don&#39t remember you pointing out what that meant when you arranged the mortgage.”

•”Why did you sell me a critical-illness policy at £60 a month when there were others available through you at £45 a month?” •”Why did you sell me a critical-illness policy from XYZ Company? I have now got aplastic anaemia and, for a few more pounds a month, ABC Company would have covered me for it and paid out the £100,000.”

I am sure you can think of many more. The moral is be aware, be thorough in the extreme and record everything. I can see the adverts now: “No win, no fee. Have you been sold a critical-illness policy in the last 10 years? If so, you are probably owned compensation.”

Of course, regulation always throws up anomalies. An example is the 10/70 rule for term insurance where, unless you are authorised to sell investment products, you may not advise a client to take out a policy of 10 years or more, when the policy extends beyond the customer&#39s 70th birthday. At first glance, you might say it is not such a bad rule, it is simply an additional layer that protects older people. However, if this is the intention, it is badly worded, because you can sell a nine-year policy to a 68-year-old (to age 77) but you cannot sell a 10-year policy to a 61-year old (to age 71), when the customer is younger both when they take the advice and when the policy finishes.

If you are going to sell pure protection in 2005, be prepared, be very prepared.

Richard Verdin is sales & marketing director of Direct Life & Pensions


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