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Tom Baigrie on protection

Have you seen the recently published Morgan Stanley figures revealing that around 10 per cent of clearing bank profits in the UK come from flogging payment protection insurance? This includes mortgage payment protection insurance or accident, sickness and unemployment insurance to the old-fashioned.

I reckon that 1 per cent of that profit would exc- eed the profit of every IFA in the land put together. So if you are not in that market, you have missed a pretty huge trick, particularly as it was not regula- ted until January.

Or maybe not. My firm was in the market all the time but we hardly ever sold any because it was hardly ever right to do so. That is a bit like it was with endowments, as it happens. But I have no doubt the ordure will be heaped on our heads as usual, unless we IFAs start shouting now about how it wasn’t us. You see, the people who, with a bit of luck, should be roasted for months to come in the press and on TV are not our colleagues, they are our competitors.

Regular readers of this column will know I feel strongly that advisers hugely underestimate the threat from non-advising mega-brands and do not do enough to attack these and the damage they do to customers and the long-term reputation of the industry.

I feel that advisers, particularly independent advisers, should disassociate themselves from those who pretend to do what we do – the tied salesmen, bancassurers, building societies and now supermarkets. They are a discredited industry, we are a nascent profession.

We seek to profit by giving the best advice we can to customers. They seek to give advice, or pretend to, in order to make profit. Putting profit first is a problem in money matters, just like it is in health or the law. The possible conflict between client needs and profit is what causes the need for professions.

The trouble with the profit-first approach is that it makes you chase the most profitable sales, not the ones that are best for customers. MPPI is profitable because it can be applied for by ticking a box on a mortgage or credit application, involves no underwriting and does not pay out much. It is like a bad, easy-to-buy, short-term, full-of-exclusions, hugely-profitable income protection policy – unlike the really good, complicated-to-sell, long-term, no-exclusions income protection policy you have been making no money selling little of.

But the FSA and the press have spotted this, so just be glad you are not big in the PPI or MPPI game. Yet again, good advice is defined by what you did not recommend, rather than what you did.

What is urgently needed is a policy that makes income protection easy to buy but which is not useless when you have bought it. I wonder if providers have any creative thoughts in the area or whether the iron grip of their reassurers means they cannot do business unless, in Richard Verdin’s words a fortnight ago, it “has a 32-page application form and needs 67 days to underwrite”?

Tom Baigrie is managing director of Lifesearch


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