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. “Half of commission is paid to the broker, 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.”