As soon as the news broke in November that the Financial Services Authority (FSA) had decided to interfere with legacy policies and bring them under the Retail Distribution Review (RDR) umbrella, you just knew they were setting out to make life difficult. And so it proved, with the rules released this week concerning legacy policies which look like they have been specifically designed to cause the maximum amount of headaches for life and pension providers and IFAs with the absolute minimum amount of benefit for the end customer.
Indeed, I imagine that the end customer will feel very aggrieved once they come into force. Having purchased a policy and paid substantial commission, under the impression that he or she would have no more to pay, it now turns out that the advice they felt they had already paid for over the lifetime of the policy will now have to be paid for again by having additional fees added on.
Subsequently, active clients who switch funds regularly, and had never expected to pay any extra for the privilege, now have to stump up every time they feel they want to change their investment style or even when they want to discuss it with an IFA and then decide to leave well enough alone.
To date there has been no fuss over this, as the knowledge of how RDR will affect existing policies has not extended much beyond financial services professionals. Once we get in 2013, we can expect a lot of fuss from clients who find they have to start paying for something that they understood they had already paid for.
The reason that these rules have been introduced is because of the excessive focus of the FSA on the adviser industry rather than on the actual consumer. Oh, they consistently bang on about customer detriment and the dangers of customers being ripped off by dodgy IFAs, all of whom they seem to believe attended the Arthur Daly School of Customer Fulfilment.
However if they stopped for a while and considered the position of the actual consumer, they might have realised that existing consumers believe that the payments outlined in their original quotations were all that they would ever have to pay. Therefore they are bound to be a little teed off when they find that advice is now closed off to them unless they stump up more money.
If the FSA had really been concerned to avoid customer detriment, they would have drawn a line between pre 2013 sales and post 2013 sales and left it at that. Simple to understand, it would have enabled customers with legacy policies to shift to a fee-based situation if they wished but to retain the commission approach that they originally contracted for if they wanted.
But of course, that would have meant approval by default by the FSA of the wicked IFA class, their scheming life and pension partners and the whole existing commission approach. And that wouldn’t do, would it? It’s far better to have complex rules that will be expensive and difficult to enforce and let the consumer go hang. The rules on legacy policies are a classic example of the FSA not being able to see the wood for the trees.