Could 2017 be the year that insurers finally give a fair deal to their most loyal yet often worst-treated customers?
Transparency has gradually improved and charges have been squeezed on new investments. Governments have introduced pension freedoms and more flexible consumer-friendly products. Yet, the millions trapped in older savings products have been largely ignored, presumably because resolving the issue has been seen as too difficult.
The glimmer of light comes from Financial Conduct Authority guidance on Fair Treatment of Long-Standing Customers in the Life Insurance Sector published last month.
While this will not get rid of some of the insurance sector’s most iniquitous charges it will at least make companies justify themWhile this will not get rid of some of the insurance sector’s most iniquitous charges it will at least make companies justify them – and it will force them to look more closely at the outcomes for the investors. That will mean addressing performance where it is consistently well below industry averages. In particular exit and paid up policy charges should come in for added scrutiny and will need to be justified.
Specifically the FCA says: “We expect firms to monitor the extent to which paid-up and exit charges result in unreasonable barriers to changing product or switching provider, and consider appropriate action as a result.”
On performance, firms may be expected to assess “whether customers have received the investment return that they could reasonably expect, or whether product charges consistently outweigh the performance being produced”.
Firms will be expected to communicate better to make sure investors can make informed decisions and they “may wish to consider ….. allowing the customer to move to a different product at no or minimal charge, reducing the charge that is causing the poor outcome, and enhancing the policy value”.
That might cover a case I dealt with recently: an investor has seen his pension whittled to nothing over a period of years when the insurer failed to make contact. Of course we might ask how so many people came to have these policies in the first place.
Part of it was Hobson’s choice in an industry packed with products designed to reward salesmen and provide a good long-term income for the insurer – with the needs of the investors placed in a distant third place.
But it is fair to ask why independent financial advisers appeared to take no note of the disastrous consequences for their client should they have any change in circumstances that could lead them to stop paying into the pension.
Did most simply not check the small print to discover what would happen if their client took a job offering an employer-sponsored pension which would mean they no longer had the will or the means to pay into a personal pension?
Did it not occur to them that the pension firm might not deliver investment-wise and their client might want to move their money?
Of course I am going back to the days when many IFAs were quasi-employees of large insurance companies depending on them for a commission-driven income stream. Times have changed but investors are still suffering the consequences. Those trapped in these contracts deserve a better deal in terms of performance, charges and information provided.
And if an insurer can not or will not provide it, investors should be able to move their money or stop paying without fear of having their investment ripped to pieces by charges.
We are moving gradually down that road. But even with the new guidance I fear we have further to go.
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Fees: what is reasonable?
Harrison Spence’s recent research on adviser charges reveals much about the archaic business practices of many IFAs. I am referring to resultant discussions on what percentage of a client’s money it is reasonable to take in charges.
Does a client with a £1m portfolio really get a service worth £10,000 a year while one with £200,000 only get a £2,000 a year service?
Come off it. It may make life simple for you but there is no way that percentage charging is a fair way to do business. Percentage-based fees are a relic of the commission era and excuse for not bothering to cost and price services appropriately.
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Building castles in the air
As this is my first column of the New Year, here are five fantasy wishes for 2017.
1. The lifetime allowance on pensions is scrapped. It is iniquitous and grossly unfair on those with defined contribution pensions.
2. A pensions minister is appointed who knows something about pensions.
3. Building societies remember that savers are the bedrock of their business.
4. The insurance industry voluntarily removes all exit and complex charges on long-standing savings products.
5. All investment-based cold-calling is banned.
Tony Hazell writes for the Daily Mail's Money Mail section. He can be contacted at t.hazell@gmail.com
