There is much of interest in the FSA releases today (26 march). The debate about fund manager rebates will get louder and continue for a couple of months. For those of us who are also interested in protection, the paper 10/8 (Pure protection sales by retail investment firms) is most interesting.
The FSA are being eminently sensible and proposing to allow commission for pure protection sales under ICOB AND COB now, subject to commission disclosure. Well done FSA! As a result, more rather than less people will have the vital protection needed for financial security.
Indeed they have gone further. They are sticking with their proposal raised in CP09/31 to look at poor outcomes for customers where critical illness and income protection is sold (or not). They have noted that a significant proportion of advisers don't recommend all three protection products when appropriate (guess which one gets left out) and have intimated that this could result in the adviser being regarded as offering restricted advice.
They have found that customers have limited understanding of restrictions and that a common failing among advisers was inadequate explanation of the extent and limitations of cover. This is hardly surprising given that so much misleading material is produced by both providers and some adviser firms - not to mention media!
There is the likelihood that advisers will see protection sales as a way of defraying loss of commission income following introduction of adviser charging. We don't envisage mis-selling here. The adviser firm will have to go through too many regulatory hoops to remain in business post RDR to risk all as a result of dodgy protection sales. However, it makes huge sense to have another income stream to the business. We can foresee good advisers acting as financial planners and wealth managers for their affluent clients whilst offering protection and lending advice to their children and their children's generation.
In this way they would be creating both tomorrow's clients and growing tomorrow's advisers - what better training ground for young advisers than young clients who will benefit most from good financial planning and lifetime cash flow analysis.
We are confident that as RDR approaches, we will see many different adviser firm models, models which reflect far more reality than some of the fee-based fundamentalism that just won't work except for the very few
