The FSA's protection proposals under the Retail Distribution Review (RDR) have been applauded, but with a few points to clarify.
The consultation paper 09/31 Delivering the Retail Distribution Review, stated that the FSA saw few problems in this market but that: "We are certainly not of the view that it is impossible to mis-sell pure protection."
The main area of risk it identified was customers paying fees for investment advice, and receiving advice on pure protection products at the same time, many believe that advice for both products are included in the fee. It concluded: "We believe that there is, therefore, a case for requiring commission disclosure where pure protection is sold under ICOBS alongside investments."
Bancassurers or providers would disclose a commission equivalent in the same situation.
Andrew Strange, policy director at the Association of IFAs, said: "I have to praise the FSA on their constructive engagement on these issues, it was nice to see positivism, but what do they mean by ‘sold alongside'? The same meeting? The same client? - but the disclosure of commission makes sense in this situation. However, it raises problems at European levels as the Insurance Mediation Directive does not include disclosure, only conflicts of interest."
Andy Couchman, director of Bankhouse Communications, highlighted problems defining investment products. He said: "I can see problems on the margins for products that have savings elements. We are going to have problems defining an investment product. It will all depend on how the specific rules are drafted, but to date this is what we hoped for."
Holloway products, those having an element of savings may prove problematic, according to Paul Hudson, President of the Association of Friendly Societies and CEO of Cirencester friendly.
He said: "Under the current RDR proposals, the Holloway sector could still be disadvantaged, with pure IP being exempt from IFAs fee charging and securing the additional qualifications, compared to Holloway IP products falling under the possible new regulations.
"The negative impact of this is that the sale of ‘Holloway style' income protection, which is a cost effective protection product designed for working people and permits the accumulation of a lump sum), may suffer."
The FSA also said there is a case for applying consistent labelling across all distribution channels for pure protection advice. The report read: "We feel that an ‘independent' adviser should be required to consider the full range of possible ways of meeting a customer's protection needs in making their suitability assessment. Advisers could choose to limit their advice to one type of pure protection product, but they would have to label this advice as ‘restricted'.
Strange commented: "This is a new definition of independent that we have not seen before."
