Advisers are increasingly imposing fees on customers who switch or cancel protection policies. Adviser Mark Sleaford is not impressed
Over the last 5 years the Financial Services Industry has come in for an unprecedented amount of criticism. From the Banking crisis to the miss-selling of PPI it is fair to say that trust in the Industry from the general public has never been lower.
This is why it is so surprising that an increasing number of firms are putting in place fees and charges within the Protection Industry for customers who switch or cancel policies.
We see an increasing number of clients seeking help from us after being threatened by advisers with court action for wanting to cancel or switch insurance policies.
The most recent case was a client who was being asked to repay £900 for cancelling a Life and Critical Illness policy they could no longer afford.
Not only does tarnish the customers trust in financial services I believe it breaks a number of FCA principles that all advisers are bound by.
One of the major principles is Treating Customers Fairly and Outcome 6 of TCF states :"Consumers must not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint."
I would argue that leveraging a huge fee for wanting to change policies goes against everything that TCF and in particular Outcome 6 stands for.
Also I would argue that imposing sanctions on clients would be a glaring example of what the FCA call unfair contractual terms with the FCA website stating firms must not: "charge the consumer a large sum of money if they don't fulfil their obligations under the contract or cancel the contract (e.g. a consumer does not pay an insurance premium or mortgage repayment on time)."
This being said from a purely legal perspective firms are allowed to insert break clause fees into contracts and if they were to take clients to court they may win.
My opinion is these firms who charge the fees will never take clients to court but hope that the threat of legal action causes the client to keep the policy until the policy is outside the clawback period.
As the Director of a large Financial Advisory firm which is mainly based in Protection I understand the frustration of policy lapses and the financial cost of that. However I would argue that imposing large fees and threatening clients with legal action is not the way to go about solving the problem.
If advisors focused more on providing bespoke protection policies for clients with a real focus on both pre and post sale customer service then not only would policy lapse rate reduce it would also begin to rebuild the damaged reputation of financial advisers and the industry as a whole.'
Mark Sleaford is director at Arc Finance Group
