The Financial Conduct Authority (FCA) consumer duty does not give any “wriggle room” for firms who think loaded premiums are acceptable, according to Tony Müdd, divisional director at St James’ Place.
Müdd warned that insurers needed to be certain they could justify distributing products through firms which had loaded premiums.
And he added that senior managers should be aware of their responsibilities and potential liabilities through the FCA’s Senior Managers and Certification Regime (SM&CR).
The contentious practice of loaded premiums – where premium rates are inflated to pay distributors and advisers higher commission – was a key topic in Müdd’s address at the Protection Review’s ProtectX6 event this morning.
Müdd told delegates that in terms of assessing fair value within the consumer duty, the regulator has placed the focus firmly on firms but at the same time made clear they are not proposing to limit margins.
“Does that give wriggle room to those firms that believe loaded premiums are acceptable? I don’t think so,” Müdd said.
“Because manufacturers are required to assess fair value and I fail to see how it can represent fair value at one price distributing via x, y, z and also fair value at the price plus 20% distributing via a, b, c.
“Manufacturers must be satisfied that their distribution arrangements are consistent with the product providing fair value.”
Müdd added that in the future, senior managers seeking to continue with loaded premiums will need to be confident they are in the right.
“I think they need not only to be confident that they are right, but that future senior managers will interpret consumer duty on this issue in the same way. If they don’t then they had better hope that they are no longer in a position that requires them to be within the senior manager certification regime.
“It’s worth remembering too the FCA have made specific mention that in their view, the more senior the individual the greater responsibility he or she has.”
Disproportionate remuneration
And in touching on signposting and the FCA’s specific reference to parties in the distribution chain not receiving remuneration disproportionate to cost within the consumer duty, Müdd added.
“It could be argued that an individual making a referral will indeed to receive remuneration which exceeds the cost incurred. However, this must be an unintended consequence,” he continued.
“In practice I believe there to be an exemption within the product source book where the consumer would not otherwise receive advice. I do hope the FCA agrees.”
