What is now referred to as the depolarised market in which we operate, Winston Churchill would probably have described as a ‘bugger’s muddle’. The ideas behind the rules and regulations that are in place are clear to see, and there is no doubt that the client’s best interests lay at their heart. However, the problem is that it has created a multi-tiered advice system, which often leaves clients confused as to what they are actually receiving and, more importantly, sees them in many instances accepting a certain type of advice by default rather than choice.
In introducing the depolarised system to protection advice, the regulator has in many ways only kept in place what stood before regulation. Prior to market regulation, advisers operated through numerous models. Only by introducing the depolarisation rules in the wake of regulation was it possible for these diverse models to remain without the need to change to a tied or independent set up.
While consumer choice has been the key driver in this, the problem remains that individuals seeking protection cover are often not aware of where their products are being sourced from and the range of products they are being given access to. Yes, these parameters should be explained in initial discussions with clients, but mystery shopping carried out by the Financial Services Authority (FSA) has shown that in too many cases the appropriate disclosure is not being delivered in either a timely or effective fashion. To compound the problem, the success of issuing such disclosure documentation to clients relies completely on them being able to understand and digest what they are given. The length and wording of these documents however renders such a hope as forlorn at best.
The broader the better
But what of the different types of advice given and the product sets offered to clients? The general consensus is that the broader the range of products, the better the options for the client and the more successful an adviser can be in matching specific needs to product. There is no doubt that this should be the case, but too often the reality is different. One reason is many of the products that may be offered from a market-wide search comprise commission structures and levels that do not advantage the client. Whether a product operates on a profit share commission or the levels of payment are simply inflated, the end result is a negative one for the client. Inflated commissions result in inflated premiums, while profit commissions mean that it is in the interest of both the broker and provider to deny claims. Neither of these situations is desirable.
For brokers working from a restricted panel there is then the question of what arrangements are in place to see the insurance providers actually get on to the panel in the first place. In many instances, the set up of such arrangements makes it impossible for insurers to offer best of breed products and so brokers are left providing for clients from a panel that is not representative of the best that is available in the market. For brokers who then seek to go off panel, the networks they operate under deny such moves and again the client is left disadvantaged.
Some clients will eschew market-wide or panel advice and seek solace from a high-street brand and take out cover based on provider reputation. While these players do offer strength in size they do not often represent best value, and in taking out protection with the same provider that has supplied the mortgage, for example, many will end up paying over the odds.
Fair and effective
Clearly it is not feasible to rubbish every distribution model in the market and there are instances in each where the product, value and service do stack up to something that represents a fair and effective deal for clients.
However, there is also a different take on the tied model that some independent advisers are offering, which provides ‘best of breed’ to clients without the confusion that myriad products offer and the poor value that many of them actually represent. By offering clients a single best of breed product in each category of insurance provided, it is possible to be certain that what clients buy represents the best in value and cover that is available. This relies on two things. Firstly, it is imperative for brokers using this model to ensure they do not, in any circumstances, mismatch unusual or awkward client needs with the product they have that might not be best suited to them. Secondly, the relationship with the product provider has to be monitored on a continual basis and changed as soon as it does not offer the best of what is available in the marketplace.
However, for brokers selling decent volumes of business, a provider will be keen not to lose the relationship in place while others will be happy to step in and take it on. This means that, without being tied, a broker can nonetheless get the best out of what a single provider has to offer. For brokers operating in this way, it is also possible to create commission structures and plans that ensure there is money to be made without disadvantaging the client as happens through too many existing set-ups.
For clients, finding their way to such deals remains difficult and it is brokers’ responsibility to help them through the maze that still exists.
