ProtectionAug 28 2013

Protection report: Panels for providers

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Get some of them talking about adviser networks and they can sound a little schizophrenic.

One minute networks are being praised for providing impressive training programmes and technical support and for steering advisers in the direction of quality providers, but the next they are being lambasted for restricting the ability of advisers to offer truly independent advice and, in some cases, even for making insurers pay for being on their panels.

Let us start with the positives. It is an unfortunate fact that many independent financial advisers and mortgage brokers know as much about protection as Eskimos do about sunbathing, and they are unlikely to make much contribution towards closing our well-documented protection gap unless they are offered significant assistance. The ability of networks to provide this is therefore surely to be welcomed.

In addition to providing generic education, they can through restricted panels help identify protection insurers with high-quality cover, good service and claims paying records and possibly also enable members to benefit from superior service level agreements and exclusive products. The Tenet Group has even proved progressive enough to offer members discounted terms on the highly-acclaimed new CIExpert tool.

Nevertheless believers in the virtues of whole of market advice are quick to criticise restricted panels for only providing access to around half a dozen providers. Although some networks also offer an option to go whole of market, the fact that restricted panels usually offer slightly higher commission levels does little to curb their popularity.

A restricted panel tends to represent a reasonable cross section of major players. At the Sesame network, for example, it consists of Aegon, Aviva, Bright Grey, Friends Life, PruProtect and Zurich. But there are always likely to be cases when a client could benefit from being with another provider.

Some insurers tend to be far more lenient to those with adverse family medical histories and dangerous pastimes than others, and the fact that Exeter Family Friendly and other friendly societies that offer ‘day one cover’ are not on restricted panels can be a real barrier to finding the most appropriate income protection policy.

Sarah Fullaway is a director of Oviso, a Derby-based intermediary specialising in protection, which is a member of FYB Network’s whole of market panel.

She said: “I would never allow my firm to be a member of a network that did not allow the whole of market option. A restricted panel is no good for the client as there is a lack of choice when it comes to fitting exact needs. For example, an ‘own occupation’ income protection definition may not be available for a class three or four risk, so the client gets an inadequate policy.”

James Caplan, managing director of London-based adviser firm First Financial – which is not a member of any network – is particularly concerned about the lack of choice of critical illness cover providers that restricted panels can impose. He highlighted in particular how wordings can differ on partial payment facilities for early-stage cancers and other conditions not covered by the core policy. For this reason Mr Caplan often splits clients’ cover between two different CI providers.

He said: “There is no such thing as a perfect policy out there and unless you know the whole market and review all policies, you can’t give best advice. Unfortunately network members often claim to be independent when they should say they are multi-tied, so it’s misleading for clients.”

Some networks also upset protection experts by issuing guidance on what is and is not acceptable advice for different client groups on using approaches such as decreasing term, accelerated CI cover or joint life policies.

Kevin Carr, chief executive of consultancy Protection Review, said: “During our independent training sessions numerous advisers have told us about the latest guidance notes from their network on protection sales, and some of this seems to be completely conflicting with the guidance we provide. There are, for example, lots of reasons for couples to avoid joint life policies and instead recommend single life plans which, generally speaking, represent much better value for money. But some networks apparently disagree.”

The networks point out that advisers can go off-panel if they choose but the process can be fairly arduous. For example for a Tenet Group network member to do so, the adviser must justify why the client’s needs cannot be met by the existing panel and how the alternative product they wish to recommend does. Such cases are approved or declined on a case-by-case basis and those approved are reviewed regularly.

There is, however, no guarantee that most advisers would seek to go off-panel when appropriate, even if the process was much easier. Interestingly the Openwork network is unusual in enabling advisers who want to take this route simply to refer to 2Plan, a Leeds-based IFA that it owns. A 2Plan adviser will then conduct a full whole of market sales process on the network member’s behalf. In practice, however, little use is made of the facility.

Of perhaps greater concern is the fact that some networks are understood to require providers to pay them significant amounts for the privilege of being on their panels – not least because this could exclude smaller players such as friendly societies which might not be able to afford the cost.

As both the FYB and Tenet Group networks are able to state that they do not require such payment, it is no surprise that their members seem keener than others to volunteer opinions on this thorny subject.

Ms Fullaway said: “Although my own network definitely does not do this, it is widely known that elsewhere insurers may have to stump up cash to get to play ball. I think everyone knows this goes on and ultimately it’s the client that suffers through lack of choice.”

Sesame and Intrinsic networks would not answer the question of whether they charged protection providers to be on their panels, despite being issued with numerous requests to do so. But Openwork proved far more transparent.

Paul Shearman, proposition director, mortgages, protection and general insurance for Openwork, said: “We tend to work very closely with providers and come to a commercial arrangement that works for both parties involving a mutually agreeable financial construction. Our aim is not to have too large a choice for advisers otherwise it becomes too complex, so it’s important to have players who would be able to manage the volumes we put through, and this would exclude smaller players.”

If deals involving provider payment are structured in a way that does not result in detriment to the consumer and are acceptable to the regulator then there is not necessarily any reason to condemn them. But the FCA does little to quash rumours that this is a subject currently very much on its radar. A spokesperson said: “The FCA is unable to comment on ongoing or potential investigations.”

Edmund Tirbutt is a freelance journalist

Key points

* Believers in the virtues of whole of market advice are quick to criticise restricted panels for only providing access to around half a dozen providers

* Some networks upset protection experts by issuing guidance on what is and is not acceptable advice for different client groups

* Advisers can go off-panel if they choose to but the process can be fairly arduous

TENET GROUP BACKS CIEXPERT

The Tenet Group network enables its members to receive a 20 per cent discount for one year’s membership of CIExpert, developed by Alan Lakey, partner of Hertfordshire-based Highclere Financial Services, to help compare and keep track of CI policies. Other networks are also understood to be considering following suit.

CIExpert, which has received excellent feedback from insurers and intermediaries since being launched in March 2012, provides advisers with a reliable and affordable set of tools to speedily identify the most suitable plan for an individual. It compares all CI plans available on the market, except PruProtect’s serious illness cover which is not technically a CI contract and is hard to compare.

Advisers simply enter a client’s name, age, date of birth, required sum assured, smoking habits and whether or not they want children’s cover included. After pressing a button, they will find all 16 available insurers ranked in terms of highest and lowest score. Two of these can then be chosen for like-for-like comparison.

A year’s membership normally costs £280 plus VAT, six months’ membership is £160 plus VAT, and three months is £90 plus VAT. Potential users can also have a one-day free trial.