Financial networks’ rules around price comparisons are encouraging “lazy” advice around protection products, advisers have said.
Compliance rules set by financial networks require advisers to justify when they do not advise clients to buy the cheapest protection product on the market.
It is thought many networks take a conservative approach to this in order to avoid potential claims coming through the ombudsman.
Advisers operating out of such networks must also use a price comparison portal in order to present their client with the cheapest option, regardless of whether the cheapest product does not offer the most suitable cover for the client.
Sam Marriott, co-founder of boutique brokerage CSE Financial Services, said many advisers were “purely advising based on the cheapest in the market” as a result.
“So many advisers don’t know their market because they advise based on price. They just go with the cheapest [option] in the portal. They don’t know if this option is the best for the client.”
Marriott continued: “From a commercial point of view, it doesn’t make sense. People are more likely to cancel policies if they aren’t suited to them.
"Yet, life insurance is purely being sold as a commodity at the moment. It shouldn’t be. And protection is being portrayed by many advisers as a quick decision, driven by advertisements, and it’s increasingly frustrating.”
Shortfalls in cover, Marriott explained, could be things like definitions being more restrictive in the small print, which mean customers have to get worse in order to get their payout.
He used the example of cancer. Whilst a client might think they’re covered, they may only be covered once they enter into stage 4 of the illness.
Whilst Marriott’s brokerage averages £60-£70 monthly premiums, he said the industry average sits at around £20.
He finds it easier to sell comprehensive cover to businesses, who he said “understand the value” and come directly to advisers. Unlike consumer traffic, which is often directed to advisers via price comparison websites.
Advisers 'can’t be bothered to argue'
Kathryn Knowles, a specialist protection adviser and managing director of Cura Financial Services, used to be part of a financial network.
Since then, she has become directly authorised by the Financial Conduct Authority.
“We had to follow all their compliance rules,” Knowles recalled. “Commission is paid to the network first and then the broker, once the advice is approved. So if you haven’t done the cheapest option, the financial network can withhold your commission. That can be really hard.
"They question your advice, and the people doing this questioning aren’t advisers themselves.”
On one occasion, Knowles said, she had an argument with a network. One of her advisers had recommended maximum income protection, which usually covers 65-75 per cent of a client’s income.
“Somebody in the network’s compliance department said ‘you shouldn’t advise income protection higher than their mortgage loan’. That’s wrong. You should be trying to insure as much as they can afford. Eventually, the network agreed we were right.”
Whilst Knowles won this fight, she highlighted the fact many advisers simply “can’t be bothered to argue with compliance people”.
She put this down, in part, to the fact many advisers fall into the protection space, which means they are less inclined to commit to complex processes.
Marriott added that “advisers already have to justify their recommendations in their suitability report”, which means the extra compliance hoops set out by financial networks feel repetitive and time consuming.
The Financial Services Consumer Panel did not want to comment on the topic but Sue Lewis, who chaired the FSCP between 2013 and 2018 and campaigned against prise comparison sites, said: “You get hollowed out products when you use price comparison websites.
“The whole business model doesn’t work for the consumer as a result. [Financial networks’] risk appetites are leading to defensive actions and having a perverse effect on customers.”
Lewis also highlighted this was an issue the Financial Conduct Authority “aren’t doing something about” at present.
Changes afoot
Despite apparent inaction from regulators, some market participants have been trying to change things.
Protection Guru benchmarks protection products by how comprehensive they are.
It integrates with iPipeline, the price comparison portal used by the Openwork Partnership - a financial network which claims to house more than 4,300 UK-based advisers that manage in excess of £20bn in client funds.
Adam Higgs, Protection Guru’s head of research, said its integration with iPipeline’s SolutionBuilder tool allows advisers to run a product features report after they’ve consulted on price.
This one-page report provides advisers with comparisons of up to five products based on a range of selected features.
Higgs said it usually took just 60 seconds to generate and was at no extra cost for the adviser if their network has a SolutionBuilder licence.
“Lots of other price comparison portals have nothing looking at policy,” said Higgs.
Data collected by iPipeline on more than 3,500 SolutionBuilder users revealed advisers were 1.4 times more likely to select a product which is not the cheapest when they’re using Protection Guru’s product features report.
Robert Harvey, a product specialist at Protection Guru, joined the firm earlier this year from advice firm Drewberry, an appointed representative of financial network Quilter.
Harvey said when “cases were checked, advisers would regularly fall down on adequate justification for not selling the cheapest product”.
This saw him write around 100 different paragraph statements for Drewberry’s advisers as a resource so they could provide the relevant evidence to Quilter.
“You can see why advisers without these resources would be put off,” he said. “Unless advisers are proactive themselves or have spent the time doing research into every single proposition, they don’t have access to evidence.”
In response to discontent expressed by advisers over the industry’s price-weighted model, Openwork Partnership’s proposition director, Paul Shearman, said: “One of the factors that has driven the focus on price historically has been the capability of the sourcing systems, but this is changing.”
Shearman cited iPipeline’s Protection Guru integration as a “major breakthrough which should be helping advisers across the industry ensure the best combination of price and quality is recommended to clients”.
But whilst many were quick to criticise the price comparison model, Emma Thompson, who heads up protection and general insurance propositions at Sesame Bank Hall, highlighted the benefits which come with it.
She said: “We must also remember that these sites bring certain consumers into the protection space who would never have contacted an adviser. Many have indeed partnered with advisory firms to help the significant majority who ‘drop out’ of the online journey.”
ruby.hinchliffe@ft.com
