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The Life Insurance Market
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The RDR seems intent on focusing on advisory distribution and how it is paid for. It seems keen to avoid addressing the issues caused by the fastest growing and most profitable sector of distribution; non advice conducted over the web and phone. I’m not at all sure why that limitation is accepted by anyone, least of all the team conducting the review. Their apparent disinterest may be because there are comparatively few complaints about non advised sales, though the reason for this is surely simply because a lack of ‘suitability’ (in its FSA context of something being good advice) is the cause of a huge proportion of complaints and that’s the one thing you can’t complain about if you have not taken advice.
So AIFA’s ‘Manifesto for Advice’ is a very necessary and timely intervention. If it succeeds it getting advice revalued in relation to its alternative selling method then it will do consumers huge good. I hope it focuses not on how a perfect adviser should look, but rather on demonstrating the good that advice does when compared to non advised selling. The difference is vast. In protection it has been shown for example, that 70% of buyers improve their non advised decision when later getting advice.
Were the RDR to focus one of its streams of review, as it should have from the start, on non advised selling they would find a huge amount of so-far half-hidden consumer detriment. Firstly they would find that advised sales often cost less than non advised sales. This might cause them to ask why the cost of advice must be fully disclosed, but the cost of non advice need not be. They might feel that it is facile to point out that ‘advice is not free’ when neither is any non-advised purchase. Indeed one can argue that in an FSA context advice is free when it leads to lower actual charges and costs than non advice does for the same product exactly. As it routinely does in protection.
Going further they would find substantial consumer detriment being caused by the encouraging and facilitating of bad consumer purchasing decisions by poorly understood information on non advised sites. Advisers get told about it every day by those who come to us having previously messed up their DIY planning and purchasing job. With non advice now booming it will not be long before more people have been ruined by their own non advised decisions than ever were by advised decisions. Indeed with the growth in the various ‘gaps’ in financial provision eerily tracking the growth of non advice, perhaps that is already the case.
Non advised selling does not cause consumer detriment by dishonest practice of a sort the FOS can punish. It does it by not pointing out its limitations clearly enough, and by allowing consumers to take good information out of context and make really bad decisions – the sort that would get an adviser straight in front of the FOS.
Of course, non advised selling is a perfectly proper route to market, the issue is simply that the FSA currently allows it to routinely overstate its benefits and understate its drawbacks. That is what the RDR and the Manifesto for Advice should
change. That non advised selling should operate on a “caveat emptor” basis while the RDR seeks quite clearly to further the grip of the “caveat vendor” principle over
all independent advisers is a grave discrimination in favour of that which all consumer groups and indeed the Treasury deem the worse of the two generic purchasing methods.
This article has featured in MoneyMarketing, 2007
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