FSA regulation has seen the introduction of a competence exam for LTC advisers. Peter Madigan explores whether this will mean better advice for customers, or just more red tape
While for most advisers, the advent of Financial Services Authority (FSA) regulation has been and gone, for those specialising in the long term care (LTC) market, there is one final hurdle.
Both intermediaries who are looking to enter the LTC sector for the first time and those existing advisers who wish to remain are obliged to take the CF8 examination in LTC competency.
The FSA introduced the exam to "ensure that customers have an enhanced level of protection covering issues such as the suitability of financial advice, product information and cancellation rights." Although such measures will undoubtedly increase consumer confidence in the market, the new exam seems designed to pre-empt any potential mis-advising complaints.
"I'm not aware of any mis-selling scandals in the long term care market, but that does not mean that they have not happened," says Nicky Cave, IFA and head of Millfield Care Partnership.
"Scandals would not come to light if consumers did not understand the products in the first instance. Even solicitors have trouble spotting mistakes since these contracts are not normally what they deal with." Whether or not any mis-selling has passed unnoticed, the fact that nothing has been reported must be due, in some part, to the size of the market.
There were just 46,000 LTC policies in place at the end of 2003, but the UK's aging population means that this number should swell in the coming years.
More policies mean a greater risk of scandals emerging and some believe it is only a matter of time before one breaks.
"We should not be complacent. Eventually a mis-advising scandal will come home to roost. The CF8 exam will provide protection for advisers as well as consumers," says Tish Hanifan, director of education and training at IFACare.
Strong uptake When the FSA announced plans to introduce the exam, it made clear that intermediaries looking to advise on LTC would have to pass CF8 before they could enter the market.
Those already within the sector were 'grandfathered' across on the condition that they pass CF8 by 30 October 2006.
Those who fail to attain a pass within the two year time limit risk been de-authorised.
According to data from the Chartered Insurance Institute (CII), 287 people sat the first CF8 exam in April 2005.
Of these, 278 passed the test and are now fully authorised to sell LTC products.
Some industry observers found the number who entered the exam surprising as an estimate from the Association of British Insurers (ABI) put the number of advisers working in the LTC market at 200, a number many had thought optimistic.
"As well as advisers, the CF8 exam was taken by a number of compliance officers and others involved in long term care," explains Steve Radford, public relations manager at the CII.
The response to CF8 seems to have exceeded even the most hopeful estimates and has dispelled widespread fears that the regulation would be seen as unnecessary red tape that would discourage new advisers from entering the market while simultaneously driving out established intermediaries.
"The introduction of the CF8 was driven by advisers themselves. They could see the pitfalls involved with advising on complex products involving large sums of money with vulnerable clients," says Cave.
This enthusiasm for the extra regulations is shared by LTC providers as well.
"I'm a big fan of CF8 as there is so much that an adviser needs to know in the long term care market, from attendance allowances to eligibility for local authority funding. We welcome anything that increases the quality of advice that consumers receive," says Mike Douglas, general manager at PAFS.
Despite the broad welcome the new exam has received right across the LTC community, there have been calls for a second exam to differentiate those who have successfully passed CF8 from a smaller, elite group of LTC specialists who would sit a more advanced secondary qualification.
Such arguments are arguably valid considering that just nine of the 287 who sat CF8 actually failed the exam.
"CF8 succeeds in establishing a benchmark that advisers can work from but it does nothing to prove that an individual is a specialist," says Cave.
"What we need is an extra level beyond CF8 that distinguishes the 30 or 50 long term care specialists in the market from general IFAs who occasionally write a policy alongside other business." It seems unlikely that the FSA will push for the introduction of another exam, so it would be down to companies to run their own comprehensive internal exams and seek to have the qualification recognised and accredited by the Financial Services Skills Council (FSSC).
"I believe that a higher accredited qualification is needed in the long term care sector," says Hanifan.
"Although I'm happy with the CF8 exam, I do not know why it has multiple choice questions as the people who lose out most in multiple choice exams are the most knowledgeable." Hanifan's complaint has been echoed by others in the industry.
When LTC advice is most often about assessing and evaluating the individual needs and circumstances of a client, are multiple choice questions really an appropriate gauge of an adviser's ability to put knowledge into practice? "The ABI wanted the CF8 exam to be light enough to allow most IFAs to get through it," says Jeremy Davis, managing director of Symponia.
"This tests people to see if they know the market, which has got to be a good thing, but it should not stop there." Growing market Although it is still early days, it appears that regulation has failed to frighten off general IFAs as many had predicted.
Indeed the only real casualty so far has been the providers who jumped ship last year.
"Regulation was a contributory factor to the insurers' mass exit from providing pre-funded LTC products, but in the long term, the resultant effect should be to enhance the professional standing within the market sector," claims Philip Spiers, director of NHFA.
Despite the positive reception that CF8 has received, it is perilous to try and anticipate where the LTC market goes from here.
After the mass exodus of providers from the pre-funded LTC sector last year, PAFS is the only provider still offering such policies and this looks unlikely to change.
"I cannot see the large insurers coming back into the pre-funded arena because these are companies that are looking for a 20% market share in every sector. They would not be interested in a niche area like this," says Douglas.
"You also have to consider the system changes that these companies would need to make to ensure that their products comply with regulation. I do not think it is likely," he adds.
Things look somewhat healthier on the immediate-needs LTC side with GE, AXA and Norwich Union still committed to the market alongside PAFS, but the situation is not that much better.
It appears that the market will continue to be regarded as ailing for a while to come.
Advisers can be confident however that with the CF8 qualification they will have some measure of independently recognised competency in the LTC field that may provide some measure of defence against accusations of misadvising.
But intermediaries should not grow complacent and imagine that their qualification will protect them if they have been clearly negligent.
"The CF8 should ensure best advice for consumers, but whether the qualification actually achieves that is up to the individual themselves," says Hanifan.
The UK's aging population means that LTC should grow dramatically over the next 20-30 years.
While the FSA is undeniably being prudent in benchmarking LTC advice now - and is doing its best to nip any potential misadvising problems in the bud - the exceptionally high number of passes on the initial sitting of CF8 may raise fears that the exam is not sufficiently stringent to weed out those advisers with an inadequate grasp of the LTC market.
Perhaps internal examinations that receive FSSC accreditation could be the way forward in differentiating the LTC experts from general IFAs, but whether consumers would actually understand what such an accreditation means, is another matter.
COVER notes °¥ All existing and prospective LTC advisers have to take the CF8 exam before October 2006.
So far 287 people have taken the multiple-choice exam of which 278 passed.
LTC specialists are now seeking to establish an elite qualification to distinguish LTC experts from general IFAs.
The predicted exodus of advisers leaving the LTC market has failed to materialise.
