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The protection racket

Consumers who think they have cover could find themselves still in the gap

I have long been pointing out that consumers who buy protection without taking advice are making a mistake most every time. The reason is that they lose the protection of the ombudsman in the area where most successful claims are made – product suitability.

There are other sides to the arguments that non-advice needs to be thought through in regulatory terms, and if you want to read all about it, I have published a 35-page booklet that I will send you if you ask me to.

Despite a huge volume of support for this point of view – from just about every national newspaper, from the Lib Dems, from Money Marketing – there has been little response from non-advisers. In our industry, those profiting from practices due to be discredited have always sought refuge in silence but thanks to Money Marketing’s No Advice, No Protection campaign, non-advisers are being forced to defend their actions. Their arguments can be rebutted as follows.

  • Consumers must be allowed to buy in this way if they want. Agreed. But non-advisers should market their policies responsibly. The problem is that if you behave responsibly ,you have to let the customers see that it is not quite the absolutely simple straightforward decision it is so often made out to be and non-advising sales on non-advised selling websites and call centres. If we agree that consumers should know their rights before they buy, whose responsibility is it to tell them if not the seller?
  • Many clients do not need or want advice and they should sign a disclaimer. Checking that the customers have considered trusts, income protection, and understood CI cover limitations for example would avoid leading them to error. The IDD exists, but it is quite simply too little too late as it does not tell customers what no advice really means and often comes well after they have decided what they think they should buy.
  • Advice standards are often poor. Advice will always be variable because it is individual but the ombudsman stands fully behind it when it fails. Advice standards can only get worse if advisers cannot afford to improve the quality of advice because they are being undercut by competitors who have lower costs. As long as marketing giants emphasise price and simplicity ahead of quality and suitability, consumers will be lead into cheap, simple, bad decisions, unprotected by the ombudsman.
  • Consumers are fed up with warnings and do not read them anyway. If the same marketing skills as encouraged them to buy were applied to ensuring that obvious mistakes were avoided, they would be. Asking sensible questions in the buying process gives customers a chance to think through the issues. That is responsible marketing in any area where mistakes can ruin families.
  • Advice is discredited after years of regulatory scandal, only supermarkets can close the protection gap. According to the authoritative Swiss Re report, by far the majority of protection insurance is still sold by advisers, but the growth in the protection gap has coincided with the arrival of non-advisers, so the empirical evidence shows that an advice-only market would do better at closing the gap. Perhaps that would be because proper types of policy and proper amounts of cover, rather than mere fig leaves, would be sold each time.

Non-advisers must accept that financial services is regulated to stop unwitting consumers being led into decisions they or their family will later regret.

In Isa investment and similar areas, damage caused by bad decisions can be repaired over time. In family protection, the damage is revealed only when the situation is beyond repair. It will take regulation or brand damage to get marketeers to accept this. What a pity that our industry still has major players which refuse to put profit behind making sure that they treat their customers as they would be treated.


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