Long before the days of big data, these agents accumulated a wealth of insight into the lives of their customers that could inform how to nurture and grow that relationship.
The successful advisers today, I think, are looking to replicate that kind of ongoing, strong, and trusted engagement.
The core client needs arguably haven’t changed dramatically.
Without protection, customers or their dependants still face the risk of loss of income and an inability to pay rent or mortgage payments or to maintain their lifestyles.
That said, people’s lives have become more complicated and the need to review a client’s circumstances (and the need for flexible products that can cope with changes) is more important than ever.
We’ve seen greater compliance oversight of the sales process, ‘reasons for recommendation’ reports, and increasing and better use of technology (think personalised risk reports and more).
The market study
Looking at the FCA's draft terms of reference, it has concerns in relation to the design of commission arrangements and whether they always support delivery of fair value.
It is looking at some specific products as well as how well competition is working in the market, noting the recent exit of several insurers.
It has said: "We are starting the market study with an open mind as to whether we will find evidence of harm", and elsewhere that: "When commissions are designed well, they can be an effective tool for remunerating intermediaries for providing valuable services to consumers."
It has outlined 4 broad themes:
- consumer needs, engagement and understanding;
- competitive constraints on insurers and intermediaries;
- commission incentives and potential conflicts of interest; and
- firms’ behaviour and practices: how firms’ incentives impact their conduct in relation to products, the market and their treatment of consumers.
What might change? The regulator might conceivably ban commission, as it did for investment business in the Retail Distribution Review.
I think this is unlikely. The unintended but entirely predictable consequence would be a huge reduction in the number of families covered.
I’ve never seen any research that suggests customers are prepared to pay a meaningful fee to buy something they’re not sure they need until someone highlights the consequences of doing nothing.
The protection market in Australia, where low caps on commission have been imposed, has seen a very large fall in the number of active advisers, as they now believe it is economically impossible to engage.
But we should welcome the market study.
Intervention needed
There will be few who think the market is working perfectly, and yet, on areas such as commission in particular, it is hugely difficult for the industry to have a meaningful conversation as to what might be changed and how because of the implications of competition law.
