Consumer Duty requires firms to evidence they have acted in the best interests of their clients and to ensure that they are provided with appropriate products for their circumstance. This should now include protection products, says Niki Cooke, chief revenue officer, Financial Technology Research Centre (FTRC).
The cost-of-living crisis is putting pressure on individuals to make difficult financial decisions. With household budgets stretched to the limit, many are opting for cheaper financial products to ease the strain of monthly fixed costs.
Protection insurance is one such product. A little over 50% of employed and self-employed people in the UK have some form of protection and or health insurance policy according to research by The Exeter.
This is to insure themselves against unexpected events like long-term illness or death. In this context, price should never be the only determining factor in making a decision and prescribes advisers and paraplanners the role to focus on quality over price as a metric to fulfil their duty to prepare their clients for financial future security.
There are three reasons for this: First, consumer needs differ and products should always respond to individual consumer needs, providing a minimum cover that speaks to the client’s requirements. Second, price and value must be fair. Third, consumers must be covered for long-term foreseeable risks.
The Financial Conduct Authority (FCA) has recognised this and recently introduced the Consumer Duty, which requires firms to evidence they have acted in the best interests of their clients and to ensure that they are provided with appropriate products. This means that firms must act in the best interest of their clients and advisers and paraplanners have a responsibility to select protection products that deliver the best possible value within a client’s budget and clearly demonstrate that the selected product meets their client’s needs.
Having a good protection policy can make all the difference when tragedy strikes, and Consumer Duty will help the industry make better quality recommendations and deliver superior value products to consumers.
In line with Consumer Duty, advisers and paraplanners have a responsibility to look at the protection products that deliver the best possible value within a client’s budget. The cheapest products in life rarely represent the best value. Quality should be prioritised because cheaper products may have more exclusions and restrictions. For example, a cheaper income protection policy may have a shorter benefit period or may exclude certain types of work. This means that if a client were to claim, they may not be covered for the full extent of their illness or injury.
Advisers and paraplanners should also consider the long-term implications of cheaper products when making a recommendation to their clients. While a cheaper policy may seem like a good deal in the short term, it may not provide the same level of protection in the long term. This could leave clients at risk of financial hardship in the event of an illness or injury.
The industry is making changes in anticipation of Consumer Duty to comply with its responsibilities. One example is Protection Guru Pro. This innovative software allows advisers and paraplanners to compare different protection products and select the best option for their clients. It also allows them to adjust the level of cover and to see the impact on the premium, making it easy to find a policy that fits within a client’s budget but includes important protection product features. In essence, it designed to help meet the FCA’s demands as it can easily allow advisers to justify and explain their recommendations based on quality and not just price.
In conclusion, at a time when consumers are at their most vulnerable, the regulator, the industry and all its participants must come together to protect the end consumer. Meaningful progress has been made, and we urge advisers and paraplanners to prioritise value, not just to comply with regulatory standards alone, but to protect their clients in the most meaningful way. Often, the immediate financial impact is negligible, but the future impact can be significant. Such value will be different for different people, and the cheapest solution may not always be the most appropriate.
Our goal is to help grow the number of families protected in the UK. Tools such as Protection Guru Pro can help achieve that those who choose protection cover opt for the solution that is right for them.
