Abolishing commission would only further hasten the descent of the protection sector, according to Alan Lakey, director of Highclere Financial Services and CIExpert (pictured).
He blamed the Financial Conduct Authority (FCA) for throwing the baby out with the bath water when it comes to regulation and laid some of the blame for a reduction of products and advisers at its door.
Shedding further light on the regulator’s upcoming protection Market Study yesterday, the FCA said it wanted to look at the design of some commission arrangements, and “whether some pure protection products provide fair value to consumers, and the strength of competition given the recent exit of several providers.”
Really difficult
When asked about the job the regulator has on its hands, Lakey told Health & Protection that the task was going to be “really difficult”.
“The problem we’ve got is premium levels are set as low as feasable,” Lakey said.
“If you remember they are lower than Japan, though the Japanese live two years longer than us.
“So we have a situation where we’re going to the bottom aren’t we?
“Over the years, advisers have probably focused on premiums and not on quality because it’s easy to show a client.”
But Lakey also maintained cutting or tampering with commission within the review will only “further the descent to the bottom”.
“Because there will be some people out there who will say, ‘It’s not worth my while. I’ve got to jump through all these hoops. I’ve got to do this. I’ve got to do that. I won’t bother. I’ll just focus on mortgages or wealth management – whatever’,” Lakey continued.
“It’s one of these things that’s already evolved over the years that is so difficult to get out of now.”
Making it difficult for firms to operate
Though Lakey also blamed a decline in the sale of protection sales at the door of the FCA.
“It is partly due to the regulator,” Lakey continued.
“It’s partly due to the fact that they have implemented certain rules and they have made it very difficult for certain firms to operate.
“Many of those firms won’t be missed because they weren’t operating in what I would call a proper manner.
“They were hard sell and they had bad product design,” Lakey added.
“So getting rid of these companies isn’t a bad thing, but in the process, you’re throwing the baby out with the bath water.
“So how would you do it? I don’t know and it would probably be impossible to do, but I blame the regulator for the fall in sale of products and the fact there are fewer advisers around.”
