Adviser > Your business > RDR > December 2009 Update > Pure protection
Pure protection
Consultation Paper 09/31 of the RDR covers commission and advice offered for protection products. Find out how this may impact on you.
Proposals for commission
Scottish Life's view
Pure protection products are sold through Royal London's specialist protection companies, Bright Grey and Scottish Provident rather than ourselves. So, we are glad to see the FSA has listened to the industry on protection.
The market was almost universal in saying that a commission ban was unnecessary so it is positive that the FSA has agreed.
Extending minimum professional standards and improving clarity around the services being offered to customers seems sensible for protection products since advising on these products requires informed, professional judgement.
The FSA doesn't believe that the same level of consumer detriment from commission exists for pure protection as it does for investment products. As a result, commission will not be banned for protection sold under the ICOBs compliance regime.
On the other hand, the FSA has raised concern over the transparency of disclosure and is developing proposals for strengthening the disclosure of commission. Importantly, this will extend to tied agents such as bank representatives who will need to disclose a 'commission equivalent' figure.
Clarity around advice
The previous RDR paper introduced various labels for advice: 'independent', 'restricted', 'simplified' and 'basic'. Labels consistent with these are expected to be introduced for pure protection.
The FSA believes that some types of protection products aren't considered by advisers when assessing how to meet a customer's protection needs.
Consequently, the FSA will require consideration to be given to "the full range of possible ways of meeting a customer's protection needs" for the advice to be described as 'independent'.
Qualification requirements
No decision has yet been made around the qualifications requirements for selling pure protection products. Two issues were identified:
- Whether advisers who meet the required minimum standards for investment advice will be held to the same required standards when selling protection business.
- The extent to which the proposals for professional conduct, qualifications and CPD will be read-across for advisers who sell pure protection products but who don't give investment advice.
And there was one last sting in the tail from the paper which came at the end. Protection can currently be sold under the COBS regime instead of ICOBS if an adviser firm prefers. However, if protection is sold under COBS in the post-RDR world, all proposed RDR rules would apply including the restrictions around commission.
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