Has the introduction of depolarisation changed the meaning of independent advice in the protection market and what effects could this have on the sector?
MARKET VIEWS
Alan Lakey, Highclere Financial Services
Depolarisation has muddied the waters. From this perspective, it is a pointless exercise, which cannot possibly be in the consumers' interest and suggests that the Financial Services Authority (FSA) is not treating the consumer fairly. IFAs have done much to invest the idea and value of an independent adviser in the minds of the public. Depolarisation hacks away at this message.
One can only hazard a guess at how the public can be expected to understand the implications of multi-tie versus independent. The larger multi-ties are using the latest industry buzz phrase 'best of breed' for their selection of ties and are suggesting that this is as good as a whole of market approach. Categorically it cannot be and we all know that the rationale behind multi-tying is the increase to profit margins via negotiated commission deals and the implication of giving best advice.
Many estate agents are advertising 'independent mortgage advice' yet they are tied to one or more insurer. Is it reasonable to anticipate and assume consumer understanding of these subtle differences? I think not. I find great difficulty in understanding how such a seismic shift has been designed, agreed and allowed by the FSA - the very body charged with establishing a consumer friendly industry. As the FSA states on its website: "We share a vision of better informed, educated and more confident citizens."
Can this vision encompass the negative effects of the limited advice and choice implicit within multi-ties? A question that is both rhetorical and sad.
PHILIP WAREING, Association of British Insurers
From the customers' perspective, up until 1 June 2005, the question of independent advice may have been simple. Customers trusted their independent adviser to provide them with the best product choice for their needs from the whole of the market.
Depolarisation does little to change this meaning, but does put a few more hurdles in the way in order for advisers to demonstrate that their advice is wholly independent.
It has, however, created an expectation that with the introduction of multi-tie offerings we will see a growing number of advisers who would previously have been whole of market now limiting their range to what they will regard as a 'best of breed' offering. This may or may not include competing products.
This could have a neutral effect on the protection market. One view is that the smart money will continue to follow the best products. But critics suggest that multi-ties present an opportunity to distribute a limited range of products in high volumes to unwitting customers. Furthermore, the only way to compete with this multi-tie distribution is to offer higher commission in order to maintain, or increase, market share.
Whether or not depolarisation introduces this risk or, given previous IFA panel arrangements, institutionalises it, remains to be seen. The trend is unlikely to emerge immediately.
CHRIS CUMMINGS, Association of Independent Financial Advisers
While some commentators suggested that 1 June 2005 would see a 'big bang' in our industry, I have always taken the view that these things tend to take their time to make an impact. Depolarisation has, however, changed the meaning of the word 'independent' for every IFA firm.
IFAs wishing to call themselves independent must now offer every client the option to pay by fee, as well as source from the whole of market. But the new rules only relate to investment business. A firm can still be an IFA and offer a commission-based service for protection products. It is important to state that the fee option is not a 'paper tiger' as the FSA has let it be known that they will be looking out for firms that are only paying lip service to the fee option. They will also be on the hunt for those who are passing themselves off as independent.
What it has not changed is the importance of advice and the fact that clients need and value it. This is certainly true in the protection market. Helping clients understand the role of income protection over critical illness cover requires a skilled adviser. With consumers naturally drawn to the cheapest premium, it is essential that they realise the true value of cover and not just its cost.
IFAs offer their clients the best advice and the best possible ongoing service. Our sector needs to take a step forward in advocating the real role of advice - especially in the protection market.
ALASTAIR CONWAY, Sesame
The arrival of multi-tie has provided IFAs with a new opportunity to improve the service they offer their clients and to achieve greater efficiency and profitability for their business. Protection panels have been around for several years and many advisers will be used to operating in an environment where they have concentrated on using a few core providers to access improved terms and additional services.
Consequently, for some advisers a multi-tie may be a natural next step in the evolution of their business. For other advisers, offering independent advice and the widest possible choice of products is of paramount importance.
The good news is there is now a greater choice of advice propositions making it easier for advisers to access the 32 million UK adults who currently take no form of financial advice.
The introduction of multi-tie is a welcome development to the market, but it should not be viewed in isolation. The reality is the market was already in a state of flux before multi-ties arrived and industry consolidation means the number of providers that advisers are dealing with on a regular basis has already been reduced.
With not much to choose between the protection products at the top end of the market, advisers add most value for their client in terms of service and quality of advice. Time will tell what sort of impact multi-ties will have on the UK market.
