This is the second post in our series documenting the in-depth conversation from our July Protection Forum, discussing the new FCA Consumer Duty. In this section, Johnny Timpson and Robert Sinclair answered advisers’ questions about what the FCA Duty does, how it will affect advisers, raising standards in the protection industry, and how to create lasting change.
It’s really important keep the client fully informed and educated in everything.
I think any adviser worth their salt will be welcoming towards this. And, you know, even going as far when the PRA did the big mortgage analysis, they made mortgages to be all advised. And you couldn’t have a non-advise mortgage because obviously a mortgage is a really, really important, really important thing. But then again, so is protection. And I think it’s really important that we keep the client fully informed. We keep the client fully educated in everything. And yet if the client is so minded, they can then just go to a comparison site and then pick the potentially wrong product with no adverse effects at all.
The FCA isn’t saying that everything must become advised, but that the customer must be able to understand what they bought and why. The intermediaries can’t sell execution-only, but the companies can. We need to make choices as an industry about how we sell products and how we behave.
Well, I think what they FCA are saying is that they’re not saying that everything has to become advised, they’re saying that not advised execution only is still acceptable in the marketplace. But what they are saying is that they expect them to be transparent and the customer is capable of understanding what it is they’ve bought and why. Now, I think also this element of this that says where do product manufacturers want to be in this game, are they happy to have their products sold in that process where maybe the customer buys the right thing or the wrong thing?
And that’s going to be interesting to me. I think the industry has that and the mortgage one’s an interesting one for me in that, and Intermediaries can’t sell execution only, but the lender themselves can do it. That’s an interesting one in the integration structure, I think has got higher risk means that you can have that process in mortgages still, although most of them do it just for a product renewal, not for original sale. And it’s really quite a challenging process on original sale. For me, this is about the industry making choices about how it wants to distribute its product. And if you have a simple product that I’d argue and say that, you know, if it’s a straight death policy then price is probably the determinant.
When you get into anything more complex than that, then there’s a debate to be had that says, actually, you probably don’t want that policy because actually income protection is much more important in terms of the hierarchy of needs, and you should be thinking about things in a totally different way. But you as the customer should be making that choice. The choice that manufacturing has is who they distribute through and how they do that. And that’s a debate the industry should be having about what is right and fair here.
And certainly in the mortgage world, it’s a debate I’m having regularly with people like UK Finance, IMLA, Ombudsman Association and the big distributors have with mortgage lenders. But are we happy about the way you’re behaving directly? Because that’s the kind of discussions that have to happen in a grown up market where there are adults conducting business as partners and not seen as two people competing against each other, which is how I sometimes feel some parts of financial services still is.
You have to anticipate that as a firm you won’t be able to meet all the needs of all customers, so you need to direct them to someone who can or a signposting service.
I agree with that, Robert. I think equally there’s an anticipatory view of this as well. So I think distributors need to look in terms of what is the value, what value they’re giving to consumers. But in terms of anticipatory, particularly when in if we took it in protection terms. So we know, for example, that due to cheap reform to the probate structure in England at this point in time, all the probate offices have been closed down, centralised in Birmingham, and there’s currently about a 15 month, two year delay in probate.
Now, we all know that as financial services professionals or we’re expected to know that. So we should be anticipating that. That basically says that where consumers, for example, are cohabitees, and there’s no will, it’s part of your value proposition. Flag wills, flag the benefits of trust means in trust, putting things in trust means that you don’t get caught up in probate and a claim can be paid that bit more quicker, and you don’t get involved in a probate delays that we’re seeing across England, Wales at this point in time. So there’s some of these things. But equally, in terms of anticipatory, and reflecting on the point that Robert made about data, where you are using data to shape your non advisory advised proposition.
And, I think it’s common sense that tells us, you know, we have to anticipate that you as a firm won’t be able to meet all the needs of your consumers. Now, that basically says, well, you can’t meet that need, that the hierarchy of access comes into play. You can’t meet the need, then collaborate with someone who can or you direct them to a signposting service. This is when it all starts to link together.
I agree with that, Robert. I think equally there’s an anticipatory view of this as well. So I think distributors need to look in terms of what is the value, what value they’re giving to consumers. But in terms of anticipatory, particularly when in if we took it in protection terms. So we know, for example, that due to cheap reform to the probate structure in England at this point in time, all the probate offices have been closed down, centralised in Birmingham, and there’s currently about a 15 month, two year delay in probate. Now, we all know that as financial services professionals or we’re expected to know that.
So we should be anticipating that. That basically says that where consumers, for example, are cohabitees, and there’s no will, it’s part of your value proposition. Flag wills, flag the benefits of trust means in trust, putting things in trust means that you don’t get caught up in probate and a claim can be paid that bit more quicker, and you don’t get involved in a probate delays that we’re seeing across England, Wales at this point in time. So there’s some of these things.
But equally, in terms of anticipatory, and reflecting on the point that Robert made about data, where you are using data to shape your non advisory advised proposition. And, I think it’s common sense that tells us, you know, we have to anticipate that you as a firm won’t be able to meet all the needs of your consumers. Now, that basically says, well, you can’t meet that need, that the hierarchy of access comes into play. You can’t meet the need, then collaborate with someone who can or you direct them to a signposting service. This is when it all starts to link together.
There is some flexibility to the consultation to be responded to.
Well, I would respond to the consultation because, you know, in the consultation itself, what the regulator has sent, because they’ve been quite clear in terms of what the duty is not intended to do. And they’ve said, I’ll read you what it says, actually: “the duty will not require that all consumers of a product or service obtain the same terms or outcomes.” So there is there’s that, I guess to some extent flex or more maybe ambiguity, if you like. So it’s there to be responded to.
I think there’s a loophole in the GI space where they’ll just put a one or two star Defaqto product on top just to get some business in.
Paul Reed:
It was just more so to echo what Ian was saying there about the whole price walking piece, where I think that’s where the loophole, for want of a better word, that you’ll see, particularly in the GI space, where you’ll see insurers then just popping on a one star Defaqto or a two star Defaqto product, knowing that actually that’s the way that we’ll get top of the tree and try and circumnavigate, unfortunately, the rule to some extent where they might have had a three or four or even five star Defaqto product before, but still maintain top– just chuck a one or two star up there just to get the business through the door. But hopefully that that doesn’t happen or they’ll be a bit of monitoring of the rules in some way or just the behaviour more than anything.
The test we need to start applying is if the products that are sold are ones we would sell to our families.
Johnny Timpson:
I think Paul that speaks to the podcast that Robert alluded to, and I would respond to that because the FCA committee were very, very clear actually when Nisha spoke, she said, “you know, the test is: would you be happy if your brother, your sister, your wife, your husband, your mother or father bought this product that at firm level as a senior manager level is basically the question that you have to ask yourself. And I think that, maybe that’s the kind of test that we maybe need to start applying for real.
I’d be interested to see the provider view on that in the products that they’re making and selling through other people.
It’ll be interesting to see the insurers view on that, because as the intermediary, if I’m the one that is selling that product, then absolutely I would want my family, my loved ones, to have that five star Defaqto or equivalent in the protection world of, you know, a really strong CI contract or the unlimited IP or the best that it can be. It’ll be interesting to see what the manufacturer of the product view is on that. And because they’re the ones that would be taking it to market on either a B2C journey or on the aggregator websites. And would they be happy in creating those products and selling them to their loved ones and their family? Which I guess is where the monitoring and the oversight is intended for.
A lot of the risk has been outsourced to intermediaries and is where the duty of care is really going to be tested, which is why its so important that you respond to the consultation.
I agree with that, but be very mindful, because if you think of the way the mortgages in general insurance and protection is distributed now, distributors actually in large part have outsourced the distribution risk to you. Which is why I think it’s absolutely important that intermediary firms respond to this consultation, because you really are at the sharp end because it’s the distribution interface. That discussion between you and the consumer is where the rubber hits the road. And frankly, where this duty of care is really going to be tested, where this consumer duty would be really tested day in, day out. So it’s important that your view is heard, Paul.
