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Tom Baigrie on protection

Some industry commentators have been saying recently that simplified advice and generic information will not work. Or to put it another way, if you do not thoroughly know what you are talking about then you are a liability and should shut up.

The commentators are talking about government initiatives to lower the bar of knowledge needed when giving simplified investment advice. I agree with them. But I would say that oversimplified generic advice is already the norm in another market area. It is the protection market that is the current natural habitat of the generic advice bluffer.

With protection still deemed to be the simplest of commodity purchases, 1,000 websites, retailers and non-specialist advisers are still recommending term life, when it is income protection that their clients will claim on or FIB that they really need. And it is no good me trying to persuade consumers that knowledgeable advice makes for a better decision. Oh no, the spirit of the age is to DIY.

But consumers need to be made aware that DIY is dangerous. An historic example of consumers getting it wrong might help.

In the late 1980s, thousands of consumers left or never joined their employer&#39s pension schemes because they were fed up with the low transfer values they got when they changed jobs every few years. When they took advice, they either got their decision corrected or were compensated handsomely a few years later, because it was a stupid thing to do. But those many who took no advice just had to lump it.

And in future, when consumers&#39 protection buying mistakes are shown up (normally at a time of maximum personal and financial upset) those who did a DIY job will just have to lump it too. Or their penniless widows will.

The FSA has said that consumers who buy direct do take on greater levels of responsibility than those who seek advice. But I never hear consumers told that on BBC Moneybox.

Now regulation might just start to trouble the generic protection advice givers, though as long as they can claim non-adviser status (that is the new term for execution-only) they can continue their pile it high, sell it cheap and don&#39t blame us if it&#39s not right, you chose it, philosophy.

The trouble is that regulation will certainly expose the poor advice of so many advisers of all types who have for years dabbled in the protection sector without the relevant knowledge.

Frustratingly, when the claims start arriving at the Financial Ombudsman Service, they will centre on misadvice, not mis-generic advice. And it will be you, dear adviser, who cops it.

The fact that oversimplified, misleading, generic protection advice has been the norm in consumer information will not be the issue. It is the advisers who advised without thoroughly knowing what they were talking about who will cop it. And quite right too, although the financial services industry can be excused for feeling a bit chippy that the know-it alls who inform the public rather than advise them will escape censure once more!

The array of generic advice givers is much wider in protection than it was in pensions or endowments for example, because protection looks really easy to those who only know a bit, and regulation has not yet arrived to show just how easy it is to get things wrong on a big scale. But never fear, the FOS is near, and will surely start pointing this out in just a few months time.

Tom Baigrie is managing director of Lifesearch


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