Protection disclosure row reignites in 2010

Adviser anger over FSA plans to change protection commission disclosure is building ahead of a consultation on the issue in March.

Proposals in December's RDR paper call for a clear division of commission and fees for customers where protection is sold under ICOBS alongside investments, to increase transparency.

Advisory firms would be able to avoid the cost and complexity of using a different compliance regime for each area by opting to sell protection as well as investments under the COBS rulebook, but only if they read across the rules on adviser charging.

Concerns over the plans have gained momentum into the New Year. Advisers now fear they will be forced to carry out a "bizarre hat-changing exercise" during a single advice session or suffer the loss of commission.

Alan Lakey, senior partner at Highclere, says: "If the plans go ahead my choice is lose my commission or accept greater confusion.

"This highlights the ineptitude of the FSA. The same duty of care should apply across the industry but not exactly the same rules. We don't need an RDR, we need a regulator review."

Protection advisers initially welcomed the latest FSA paper, which stated adviser charging would not be brought across from the investment side of the industry (see page 9).

But early confidence is waning on closer analysis of the plans.

Roy McLoughlin, senior partner at Master Adviser, says: "How do you explain to a client you can advise on an ISA using one set of rules and then get up, effectively leave the room via a revolving door, only to re-enter in a completely suit and hat to sell protection under different rules."

Those advisers unable or unwilling to shoulder the dual regulation face a tough decision going ahead.

Peter Chadborn, director of CBK Colchester, says: "The protection business will not work without commission. So firms like us who would previously have disclosed under COBS now must understand ICOBS, placing a greater regulatory burden on us with no obvious benefit to the consumer."

However, not all advisers are worried by the FSA's plans.

Phil Jeynes, head of new business at Direct Life & Pension Services, which operates mainly under the ICOBS rulebook but with full disclosure, says: "The perception from people is it would be complicated but it is not at all. Most adviser firms are doing it."

The FSA will consult on possible changes to protection commission disclosure under ICOBS alongside investments towards the end of the spring.

But McLoughlin adds: "We need to address the fact we very rarely advise on single products and holistic advisers will need some urgent clarification on this."

The FSA will open a separate consultation on pure protection commission disclosure at the end of March. Meanwhile, the current consultation on the pure protection section of the December RDR paper will close on 16 March.