Compliance processes and advice guidelines exist in various networks and firms across our industry and it’s fair to say they differ between firms.
Having worked as an adviser, I appreciate how compliance guidance operates across different networks; as a result, I’ve always thought of advice guidelines like a pair of scales.
The solution recommended should balance to the need and objective of the customer.
If the solution delivers cover above or below the customer objective then compliance teams need the adviser to clearly explain why that recommendation is suitable.
There are certain long-standing defaults that lay out what a suitable advice recommendation should look like.
But there’s a strong case to say compliance teams should now be considering other basic default positions of good practice advice based on modern life.
After all, we’re now operating in the context of Consumer Duty, which includes the cross-cutting rule that “a firm must act to avoid harm to retail customers”.
Single or joint life?
The CIExpert Single is Best campaign describes the recommendation of two single policies to a couple, as opposed to a joint life policy, as “superior cover” and it urges the industry to open the door to allowing advisers to recommend single covers to couples.
For some, this runs against the default compliance position they’re used to, where advisers are required to recommend joint life policies to couples, specifically when the customer need is mortgage repayment.
The reason for this logic is the mortgage is jointly held.
A joint life policy pays out once and when it does, the funds are there to repay the mortgage, so there’s no further need for cover.
But is that always true, and is that always the best advice?
Let’s consider the cross-cutting rule again: “A firm must act to avoid harm to retail customers” and “act in good faith”.
Consumer Duty principle 12 adds: “A firm must act to deliver good outcomes for retail customers”.
Six key examples
These considerations are worthy of a more detailed look.
- First, we know a customer’s eligibility for protection is likely to change during their lifetime. Some customers develop medical issues which go on to make the availability of cover unavailable or unaffordable for them in the future.
- Second, we know couples split up. In fact, the ONS tell us in 2022 there were 80,057 divorces in England and Wales, which does not include unmarried couples who simply go their separate ways.
- Third, if couples do separate, joint life policies require both parties’ consent to split the cover, if that’s possible. That can leave survivors of domestic abuse reliant on their abuser for financial decisions.
- Fourth, we also know the availability of children’s covers can be a crucial consideration for parents taking out protection. With some providers, children’s cover is automatically included, and other providers make it an optional extra. But if one person claims on their cover, the whole policy ends and that leaves the children unprotected.
- Fifth, there are situations where a claim is made and the surviving or non-claiming partner of a joint life policy still needs cover and wants to take out more cover. They might now be uninsurable, or they might be priced out due to their age and health.
- Sixth, it’s also true that men and women face different health risks and therefore may need critical illness cover that protects them against the financial impact of different illnesses. Different covers offer gender specific benefits, and these differ between providers. What’s suitable for one partner, may not be suitable for another.
These examples are just some of the situations where joint life cover can unwittingly mean customers don’t go on to receive the best outcomes.
Future proofing recommendations
So, do we need a rethink? Do we need to put a greater emphasis on future proofing a recommendation?
We’re supporters of the Single is Best campaign.
For the reasons listed in this article, we made a deliberate decision not to offer joint life cover, instead we offer a dual life approach where both partners’ cover is kept separate.
I’ll end this article by referencing the golden rule; the principle of treating others as you yourself would want to be treated by them.
I’d urge everyone to consider which approach you would want for yourself?
Based on that, there’s certainly a robust compliance justification for cases where an adviser thinks their customer would benefit from two single lives rather than joint.