The protection industry is expecting a reduction in the number of IFAs post RDR of from 20-50%, depending on the survey chosen. Will this impact on sales of protection and will this prompt the resurgence of in-house sales forces - the man from the Pru?
I am sure the widely quoted and increasing ‘protection gap’ is already more a function of diminishing adviser numbers than it is a reflection of changing consumer needs or perceptions. Adviser numbers have shrunk dramatically over the last 10 years.
A further reduction in IFA numbers (and it is difficult to imagine there will not be one), will inevitably impact on sales of protection. There is a chance that the impact of the absolute reduction in numbers may be diluted by some investment and pension advisers moving to what they may see as a less onerous regime. That brings its own challenges in terms of education and quality of advice.
A removal of initial commission, if imposed on the protection market, could easily mean a further widening of the protection gap, with customers looking to buy direct and without advice, or not buying at all.
For the customer, access to advice should be an important issue. Some provider firms have already suggested they will set up direct salesforces to service customers who would otherwise be disenfranchised as a result of not having access to an IFA; others though may look more at direct marketing or internet based options.
Our own core focus will remain on distribution through advisers. Today that is the only route we use to distribute our products. We clearly need to assess the impact of the potential changes over the next few years, and we will look to learn from Zurich colleagues worldwide in terms of changes being experienced elsewhere”.
Kevin Stevens, Bright Grey
Any adviser worth their salt would agree protection is the foundation on which all other financial advice should be built. What use is advice on regular premium investment products if no advice has been given on protecting the income or the individual paying the premium?
Although RDR proposals are yet to be fully formulated for protection sales, the current published proposals suggest the qualifications bar will be raised for those advising on protection products.
If this happens we could well see some protection advisers becoming fed up and leaving the industry or retreating to an advice/sales process. And with fewer advisers writing business it is inevitable that protection sales will initially take a tumble.
However, if the FSA are truly committed to embracing and promoting professional and holistic financial advice then protection should have a bright future.
However, qualifications are not exclusively the answer. In some cases extremely professional and well qualified advisers may suggest a client sources their protection solutions themselves, rather than advise on bespoke solutions to their needs. This cannot be right!
In many cases protection advice is merely transactional. We should be embracing protection as advice driven with sound recommendations, which delivers an outcome where the client recognises and reflects reassuringly on what they have bought.
The financial industry has progressed and developed in a way that would suggest we can never go back to ‘door to door’ selling. Consumers rightly demand value for whatever they buy and that means making choice.
Aidan Dewhurst, Royal Liver
Irrespective of the various predicted figures, it is hard to disagree that the RDR will significantly reduce the number of IFAs out there. What is interesting is that it may open a space for some new routes-to-market.
For those IFAs who remain, while they might in theory have a bigger share of the customer pie, the reality is more likely to be very different. If and when fee-based advice starts to replace commission, there is a good chance that they will lose a sizable portion of clients. So it is no surprise that many have already started to look at changing their business model.
Similarly, in the advent of the RDR I am sure we are not the only provider who is keeping a close eye on their existing business model. Ultimately, it is about having an appropriate infrastructure and being flexible enough to adapt to any number of market changes.
Distribution is an important consideration but if customer need remains strong there should not be a problem – on the contrary it might offer some interesting new opportunities.
I would be surprised if Providers returned to ‘the man from the Pru’ mentality because while it worked well at the time, the industry backdrop has changed. More companies are starting to appreciate that technology holds the key to any direct business model and maybe this the is modern-day equivalent to the old-fashioned face-to-face salesman.
Finally, it is also worth considering whether changes in the IFA world might invite some protection providers to focus on more innovative distribution channels. For example, the government’s proposals for Personal Accounts are likely to have some interesting parallels.
Andy Milburn, Munich Re
The inefficiencies and high costs of maintaining in-house sales forces and keeping them compliant are a major reason why a number of the direct sales forces of the past have ceased to be. Here at Munich Re we do not see anything in the RDR that will address that issue.
However, everyone we speak to in the industry agrees that the RDR will have an impact on sales of protection products, and the advisers who are involved in them. It is generally accepted that older IFAs may well decide that this is the time to ‘bail out’, rather than electing to sit a number of exams in order to continue advising for a small amount of time.
Secondly, the larger distributors must be considering their position for when the RDR is implemented, whether protection is included in its scope or not.
It may well be the case that a number of independent advisers consider moving into the restricted adviser route if they wish to focus on mortgages and protection sales in future. This could lead to a reduction in the numbers of IFAs but not falling protection sales.
There are other factors which affect protection sales too. Online sales continue to rise, with more people choosing the internet route – mostly through price aggregators, or direct insurer sites, rather than the face to face route available from banks and IFAs.
Most industry commentators seem to agree that the number of IFAs is set to fall. If protection is included in the scope of the RDR then protection sales could fall dramatically. If not, the fall may be a lot less than we think.
