RDR: Protection adviser labels will confuse consumers

Changes to the labels ‘independent' and ‘restricted' for the protection market will confuse advisers and consumers alike, say industry experts.

Today's FSA consultation paper proposes bringing a read-across of investment adviser labelling into the protection market to create "consistent labelling across all distribution channels".

However, for protection the labels will relate to the range of advice offered rather than being based on whether an adviser is 'whole of market'. 

A 'restricted adviser' on the protection side would be limited in terms of the types of products offered, so for example if they just advised on critical illness rather than the whole spectrum of protection.

Meanwhile, on the investment side, an adviser could be 'independent' if he only advises on one product area and would only be 'restricted' if the list of providers available was limited. 

Figures based on FSA data released in the previous RDR paper in June suggest of the 4,038 retail investment intermediary firms selling both retail investments and protection, 769 do not offer all three types of insurance. This means they would be labelled ‘restricted' for protection under the proposed changes.

Advisers say this different application of the same terms runs contrary to the RDR's principle of providing greater clarity for consumers.

Peter Chadborn of CBK Colchester, says: "If you look at protection in isolation it makes sense. But when you apply it to the wider area of financial services in general it is confusing for both consumers and advisers.

"Consumers will not expect to differentiate between two uses of ‘restricted' and ‘independent' and advisers who also deal in investment advice will not know which hat they are wearing when."

Justifying the planned move, today's consultation paper states: "We feel an ‘independent' adviser should be required to consider the full range of possible ways of meeting a customer's protection needs in making their suitability assessment.

"Advisers could choose to limit their advice to one type of pure protection product, but they would have to label this advice as ‘restricted'".

Some advisers believe the FSA should scrap the labels altogether.

Harry Katz, principal at Norwest Consultants, says: "The FSA has been very silly about this. The word adviser should be completely restricted to independent adviser. The rest are just salesmen. They can not give advice because they can not offer options.

"What the FSA needs to establish is clarity, and once again they have not."

However Sheila Nicoll, FSA head of retail policy and conduct, says: "It is precisely because of situations like this that it is important advisers explain to consumers what it is they can offer.

"It is important to recognise the personal protection element of this consultation paper is a genuine consultation document, and we await feedback."