PS10/13: Pure protection sales by retail investment firms
The FSA published Policy Statement (PS) 10/13 on 24 September 2010. This 26-page paper is entitled 'Pure protection sales by retail investment firms: remuneration transparency and the COBS/ICOBS election - Feedback on CP10/8 and final rules'.
As originally proposed, the FSA will amend its rules so firms who elect to sell pure protection under COBS (rather than the Insurance Conduct of Business (ICOBS) sourcebook) can continue to do so after the RDR is implemented without applying the adviser charging rules to their pure protection sales. The rules will take effect from 31 December 2012.
What are advisers required to do?
Once the RDR takes effect, retail investment firms must:
- explain how they are remunerated for pure protection services associated with investment advice; and
- disclose the amount of commission they receive if the customer then purchases a pure protection product.
This does not apply to all pure protection sales - only those associated with investment advice.
The risk that the FSA is seeking to mitigate is that customers may be confused about what their adviser charge covers because additional services are provided concurrently, and are unable to evaluate their adviser charge in light of the additional remuneration received by their adviser.
Instead of requiring firms to disclose in all cases where an adviser charge has been agreed in the past 12 months, the FSA has included guidance that states that where an adviser charge has been agreed more than 12 months prior to the pure protection services being provided, then the services are unlikely to be associated. The longer the gap between the investment advice and the pure protection sale, the less likely it will be that the customer will misunderstand what their adviser charge covers.
