By now we should all know what consumer duty means for protection.
The real question is whether, as a result, more and/or better protection will be written.
Many commentators and industry colleagues would consider this a rhetorical question. I am not so sure. To brutalise Oscar Wilde, this may be the ‘expectation of hope over experience’.
After all, clients aren’t going to start being proactive, seeking to purchase protection products, just because there is greater consumer protection.
So if protection is to increase it will, as it always has been, be down to advisers.
In brief summary the consumer duty means:
- policies should only be distributed to the target market;
- policies should be distributed according to an agreed distribution strategy;
- there should be evidence that the clients receive a good outcome;
- the cost of the policy and advice should represent fair value (good luck with those still engaging in the outrageous practice of loaded premiums); and
- the client should be supported in their use and understanding of the policy.
For those advisers that already discuss protection with their clients, consumer duty will make little difference.
This leaves us with those that don’t and for me, in turn, a consideration of the cross-cutting rule: avoiding foreseeable harm – that advisers' actions or omission of action impacts a client's ability to pursue their financial objectives.
The FCA does not expect advisers to anticipate harm if it is not obvious – along with the plethora of skills advisers need becoming clairvoyant isn’t going to be another.
It’s not about predicting the future, it’s about making reasonable assumptions on likely outcomes based upon the adviser's experience and knowledge.
It’s about identifying how an individual client's circumstances could change and what mitigating steps have been taken to minimise any financial impact.
If you haven’t worked it out already avoiding foreseeable harm is all about the advice process. Giving advice and documenting it: evidencing.
Those that hold themselves out as holistic advisers have, or at least should have, the experience and knowledge of circumstances where protection provides the only realistic mitigation to poor client outcomes, including:
- clients with significant debt (mortgages);
- clients with financial responsibility (the family breadwinner);
- clients with dependants (including caring responsibilities); and
- clients renting without resources in the event of long-term sickness.
Premature death, serious illness and long-term sickness are foreseeable.
The financial impact of any will, to varying degrees, cause clients harm.
Self-evidently the failure of advisers to raise protection with clients who have a clear identifiable need for life assurance, critical illness and/or income protection must risk the failure to avoid foreseeable harm.
The responsibility for this however does not just rest with advisers, it also sits with providers, commentators, managers and a whole variety of support professionals, who in my view shouldn’t use it as a stick to beat advisers with but rather a reason why doing the right thing is in their interests as well as their clients'.
Tony Mudd is divisional director – development and technical consultancy at St James's Place
