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Tom Baigrie- we must prove case for protection commission

There has been much protest at the FSA’s floating of the suggestion that the tenets of the retail distribution review could be extended to markets beyond its primary remit, specifically into the area that often concerns this column, protection.

The response from the leading voices in that market has been a unanimous “Keep Out”, but as we have all seen since 1997, the more you protest to the FSA that they have it wrong, the more they think they better investigate why you protest so much.

From their perspective, that must seem a fair approach, after all why would people react so emphatically if they had nothing to hide? “What have these practitioners to fear from a thorough analysis”, the regulators ask themselves. When I put it to one such that his public words on the matter had, at a stroke, cut off all investment into the protection distribution sector, his response was dismissive. It is clear that their top team are intent on making an omelette and accept that eggs must be broken. Their cause is too important to worry too much about the short term effect on a market.

So, while we wait for a Tory treasury to start making an omelette out of the regulators, and I for one cannot wait, we best co-operate closely with the FSA enquiry and try not to rail against their intransigence, but rather best educate them about our business warts and all. After all, in the wake of the payment protection insurance debacle, it is silly to pretend that every protection purchase is well made and that all distributors are perfect in the way they arrange protection for those that want it and how they engage with those many more who do not want it, but should.

We should also accept that the FSA, in enquiring thus, is not focused on the need to get people better financially educated and saving and protecting more. That drive exists, but elsewhere and with no current intent to influence the analysts who are tasked with deciding if the RDR’s rules would improve consumer outcomes when they buy protection. Explanations about the protection gap are of little interest to civil servants worried about their reputations, when what they fear is that their activity in one sector might cause bad practice in another. They could then be blamed for that, and frankly that other sector would better be closed down altogether than cause that risk to them personally.

So our job is to prove that protection advice does not need further regulatory attention and the key to that is addressing the conviction that commission must be stamped out of all advice because it must cause. I have listened to the FSA leadership talk both formally and informally and I know that they cannot easily see beyond that point.

So the challenge to all who would engage in protecting protection from the carnage that only those who mean well can cause (final salary pensions, indeed all pensions savings spring to mind), is to address that central issue of commission. There is no point pointing out the huge public good that can be done if IFAs move further into the market, no point in saying that the primary evil in protection is that we do not sell enough if it. If commission causes bias, the FSA will want to remove it from the advised protection sale.

It will be tough for practitioners to focus their arguments around this point, but they best do so or the FSA’s interest will grow and grow until they become convinced that they best do something.

Tom Baigrie is managing director of Lifesearch.



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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Protection Commission
    Whilst there is every arguement to say that protection needs “selling” (in general very few people have good levels of same) and therefore remuneration is justified, there is however ludicrous remuneration on some cases involving big premiums.

  2. Prover the case for protection
    At last sanity! – We need to work with regulators and not always against them even though we believe them sometimes to have been wrong in the past. They represent a valid constituency and Tom Baigre shows how an industry leader can help towards sane and sensible discussions. Keep up the excellent debate you have started Tom, many thinking IFAs are behind you. I approve and agree with almost all your statement. Well Done.

  3. Tom Baigrie- we must prove case for protection commission
    What a dreadfully poorly written article. Whatever is he trying to get across? As I see it, the regulator should be challenged robustly with the question as to what evidence it has that there is any need for the abolition of commission on protection products. Or is this newfound interest in pulling apart the protection market, as we suspect, just the FSA’s latest regulatory wet dream? Not that it really matters, though, as most of us are just waiting as the days to tick by until the FSA is scrapped. Anyone up for a party, come the day?

  4. commission or fee
    We are a fee charging firm, yet I have still to work out a fair way of charging fees for protection contracts. Neither time charging or fixed fee seems to make sense when a client is declined, for example. “Sorry we cannot place your life cover, and by the way here’s a bill for £500.” A level and fair base of commission on protection products seems the right way forward. This needs to somehow take into consideration the time that can be wasted on difficult or declined applications, so cannot be set at too low a level.

  5. Proving the case for protection commission
    Surely with today’s protection sales tools, platforms and quotation systems it should not be hard to show that either the most competitive policy was recommended/sold on the basis of price, or that the policy was not the cheapest but had other unique features that the client wanted/needed. My fear is that if RDR is extended to protection and inevitably mortgages, many brokers will be unable to continue in these markets as ultimately it is this sector where customers are most resistant to paying fees. We need to make it clear to the Regulator that the average broker who sells mortgages and protection will not make a living from non commission paying products and lower mortgage proc fees. The customer will end up going to the bank direct for their mortgage and being offered one protection provider with little or no advice although maybe this is what the regulator wants!

  6. Education, education, education
    I think the central point of Toms’ argument is that the FSA need to have things explained to them in a simple way, preferably in words without too many syllables.

    To do this they do need to be engaged with.

    This highlights the FSA’s credibility basic problem.

    The FSA’s track record on listening has to date shown that they have little to no interest in any business other than the largest (they are on record as having said that they will not be concerned about choice and competition until there are LESS THAN six companies for then to regulate)
    Their idea of listening is that they are the regulator and firms must listen to them, in effect a one way street.
    The only listening they do is to the not so discrete lobbying of those large businesses protecting there own interests, for whom they will happily ditch consumer interests as well.

    The other credibility problem the FSA has is of course the declared Conservative policy of disbanding them. You can bet the FSA are now mobilising all and sundry behind the scenes and lobbying hard anyone they possibly can on this.

    I do hope that George Osborne holds his nerve on this because he will come under intense pressure over the coming months.

  7. Just wait until…
    ….more people are dependant upon state benefits, more families are made homeless because they were not adequately protected from the loss of the breadwinner, or they have to cope with a family member who needs constant care..etc…etc… all because there was nobody to persuade them to make arrangements which would provide in times of need. Wait a minute, is that what the state wants? Maybe.

  8. Greed and fear…
    I am one of the few that agree with the FSA proposals. From a consumer POV why should a CIC policy from the same insurance company be priced so differently by different brokers / IFA’s. Same product different pricing, surely a sale led by greed. Why all this noise, from protection sellers??? Because there is a fear of loss of income!!! Surely this is a great time to reach out to consumers and be transparent about the cost of your services. We need to evolve to “consumers who want a product will pay for the service”, and not “consumers will pay for the service through the product”.

  9. Protection Commission
    I agree with the earlier posting that the FSA are vigorously lobbying all and sundry in response to the numbering of their days. In a recent national paper they were referred to as the “improving FSA” which sounds like a soubriquet dreamed up at a lobbying lunch. How unfortunate that they are being heavily criticised in the last few days for their inactivity over the Icelandic banks and have just had to borrow £200 million to cover their overspending. It will take more than a snarl at protection commissions to stay this particular execution.

  10. I am surprised to say
    Maggie Craig, Director of Life and Davings at the ABI, she appears to be singing off the same hymn sheet as Tom Baigrie (with whoms thoughts I find I regularly agree).

    I’m looking forward to Alan Lakey’s comments and opinion too. As Simon Ludden has found, so have we i.e. however well we’ve managed to adjust our models to provide customer agreed remuneration (I don’t intend to refer to it as advsier charging as the term is not as clear as CAR) on investment and pension business, and despite having clear terms we try and quote to clients for protection reviews on a fee basis, it just does NOT work for protection on smaller cases, i.e. your client who is going to spend £20-£80 per month on protection. Yes they could go to Tescos and get it cheaper than the same AVIVA cover available from an IFA, but they invariable end up with the wrong cover, no Trust in place and myriad other problems surfacing later. When someone suffers an illness or death, they don’t get the same service either, often within the original commission recived maybe 20 years earlier.

  11. Overzealous, over-regulatory and over here
    Oh dear, the FSA is really going to do it now. Confuse the consumer, that is. How can it not include general insurance and mortgages without total confusion reagning? Equally, how can it introduce such measures without culling the ranks of advisers, reducing the levels of protection sold and increasing the protection gap? The truth is, they have dug themselves a big hole and in trying to scramble out of it they may succeed in buying the rest of us. Can you educate a child that exhibits little interest in learning?

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