The Protection Distributors’ Group (PDG) is calling on advice firms and networks to tell their employees and customers if they are operating with loaded premiums.
The subject was raised in a press statement issued by the PDG in response to the Financial Conduct Authority’s Protection Market Study interim report in which it also touched on the issue of reviewing cover, churning policies and closing the protection gap.
Expecting a different conclusion
While the PDG revealed it had expected a different conclusion regarding loaded premiums, maintaining its position that they can lead to poorer customer outcomes, it added it would like to see greater transparency of these arrangements, as advisers are not always aware they are recommending policies with loaded premiums.
Inform advisers and customers
Speaking to Health & Protection this morning, PDG chairwoman Emma Thomson (pictured) maintained there are quite a lot of advisers who have not been told either by their employer or network that they are working on a loaded premium basis.
“We know that does happen,” Thomson said. “I’m not saying that that’s the norm, but we know that there are advisers working on that basis and they are not aware.
“We just feel that if you’re on loaded premiums that you should be more transparent about it to the advisers who are going to be recommending on that basis and also to the customers that you’re recommending to as well.
“Tell them this is our arrangement, you’re paying a bit more, but you’re getting this in return.
“If you’re able to justify what they are getting in return, then make it clear.”
Just let them know
In terms of how this could be done, Thomson added that firms should just let their advisers know.
“If you’re an advisory firm within a network or a mortgage club with loaded rates, then all of the advisers in that organisation, we believe, should be aware of that so they can be upfront with their clients if they ever ask about it,” she continued.
“It could appear on the quote. We don’t necessarily have all the answers.
“We just want the FCA to be mindful of that if they are not going to outright ban loaded premiums, then that’s something they have done some investigations into and they are continuing to look at it, we just feel that it needs more transparency because at the moment if you’re a client looking for a policy, you’re not necessarily aware that you’re paying more.”
Tackling the protection gap
But Thomson added that the protection gap remains the biggest area of concern for the sector, with the FCA’s interim report revealing that 58% of adults have no protection cover in place, and 59% have never considered their protection needs.
On this point in its press statement, the PDG maintained effective adherence to the Consumer Duty should help address this issue.
“Many consumers have not considered their protection needs because they’ve not been made aware of the risks or solutions available,” it said. “If all advisory firms, regardless of specialism, ensured clients had access to proper protection advice, either in-house or through signposting, it would help to reduce the protection gap.
“With the FCA reporting that 91% of consumers are unable to access financial advice, we are encouraged that it’s re-considering its decision not to include protection within its Targeted Support policy. If this is reversed, it could help more consumers access protection products. The government also has a part to play here.”
Engaging for the right reasons
Touching on the issue of reviewing cover and churning policies, the PDG pointed to two distinct activities – churning which involves arranging like-for-like cover primarily to generate more commission and reviewing cover so it can remain suitable and enable advisers to re-evaluate customers’ unmet needs.
“We acknowledge the FCA’s concerns but believe there are simply not enough good reviews currently being undertaken,” the PDG added.
“We’d like to see the FCA encourage advisers to engage with their clients more regularly for the right reasons.”
