Protection markets can change

Protection products are facing some pretty fundamental changes in the next few years, which will affect the way they are priced and sold.

Some of these changes will have a negative effect on prices, but at the same time they also represent an opportunity for advisers to restructure the way their business approaches this sector and increase the amount of protection business they write.

Industry sales data shows that in recent years protection products have been sold by advisers as a secondary sale to investment, retirement, or even mortgage business. However, the opportunities for protection advice to become a more significant and standalone part of advisers’ business post-2012 are there to be taken.

The opportunities for protection advice to become a more significant and standalone part of advisers’ business post-2012 are there to be taken

After much gnashing of teeth, the most recent research seems to show the body of advisers intending to remain active in the wake of the implementation of the retail distribution review is very high and still rising. Indeed, the most recent data from Aviva found that 81 per cent of adviser firms are now saying they are highly likely to remain in the industry.

But this is still very much a moving feast, and there is no doubt that the need to gain additional qualifications and the move from commission to fees will be the catalyst for many advisers to quit the industry on or before 1 January 2013. It is also inevitable that with such a major structural change to the way firms are capitalised and are remunerated, that not all firms who make the transition to the post-RDR world will be successful and will be forced to bow out despite their best efforts.

I do not think for a minute that those leaving the industry will be those who specialise in advising on protection, but there will inevitably be a rebalancing as the industry adjusts to a market with fewer advisers. This post-RDR adjustment will see more business being transacted by those firms who remain, and more firms beginning to offer more holistic advice, as they seek to remain profitable and are unable to rely solely on investment-related business to do so.

Clients will also become more receptive to protection advice as it may help to offset fees paid by consumers for advice through the commission generated by their insurance purchases. The simple point here is that if you do not offer protection advice, you may well find that potential and existing clients begin to turn to an adviser who will, simply because it makes more financial sense for them to do so.