Protection: Is the RDR really TCF?

Axa's Graham Harvey asks if proposals to 'read-across' the RDR to protection risk demeaning the treating customers fairly (TCF) principles...

Like many of you this time of year, my diary is packed with planning meetings for 2010.

One announcement I know a lot of us will be waiting for early next year is the FSA recommendation on whether protection should be included in the Retail Distribution Review (RDR).

Recently we carried out some research to find out what advisers really think about the commission debate, and 79% of respondents said they felt the move to a fee-based model would have a detrimental effect on the business.

One adviser said: "We have consulted some of our clients and none would want to pay a fee for protection advice. Many would rather go without life cover than pay for a consultation."

Similar responses were reported from advisers working at 40 different firms. Like me, 67% of advisers were supportive of a higher standard of education. The RDR's aim to secure consistency for consumers, advisers and providers may be a good thing, but if indemnity commission disappears, the knock-on effect from protection advisers leaving the market could end up increasing the already-staggering £2.3trn protection gap.

What I find hard to get my head around is that it isn't exactly TCF if we're putting independent financial advice out of people's reach.

Some struggle to commit to paying £20 a month for cover, let alone having to pay several hundred pounds for financial advice.

The hike in price could lead to people not being properly covered. Any proposals to help improve consumer trust, adviser training and qualifications are to be commended. But I believe that the industry must continue to provide low cost advice for consumers who can't afford fees.

By allowing two business models -one for investments, one for protection - to co-exist, we could solve the problem of pricing consumers out of protection advice.

Clear controls and transparency of price would need to be put in place so that customers are given a fair outcome. This way the industry could offer protection cover for both advisers who are fee-based and those who want commission rewards.

Some have argued that this could cause advisers to focus more on protection but I don't believe that this will be so severe that it will alter the advice given that customers will be disadvantaged. "sledge hammer to crack a nut" comes to mind.

Graham Harvey is managing director of protection at Axa