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.