In what probably represents good news for their customers and a blow for their shareholders, insurance companies are set to face a review of their rip-off pensions and investments sold since the seventies.
The Telegraph has reported that this review will be a priority for the Financial Conduct Authority (FCA) when they publish their annual business plan next week.
It is expected to investigate the 30 million pensions and investment policies sold by direct sales arms of insurance companies, dating all the way back to the 1970s.
Writing for the Telegraph, Dan Hyde says the review is expected to start this summer and will cover pensions, endowments, investment bonds and life insurance.
Insurance shares lose £3bn on back of @telegraph splash today http://t.co/q3fqLU4ZUx
— Dan Hyde (@DanTLHyde) March 28, 2014
The commissions paid to the salesman selling these policies was often a big driver behind their sale.
Commission was banned on the sale of new (advised) retail investment products when the Retail Distribution Review was introduced on 31st December 2012, but remains available on non-advised sales and on some non-investment products.
Will FCA move on to investigate commission driven sales of financial products that are still happening and banning all commission.
— Paul Lewis (@paullewismoney) March 28, 2014
This is no doubt bad news for insurance companies, have have profited from so-called ‘zombie’ funds, using this revenue to cross-subsidise other, less profitable areas of their businesses.
11 million people have £140 billion tied up in funds that are closed to new business and not making any money – zombie funds.
— Chris Choi (@Chrisitv) March 28, 2014
It’s been a pretty bad couple of weeks for insurance companies, who were effectively excluded from any consultation prior to the bombshell announcements on pensions in the Budget last week.
Insurers who have better practices are supporting the changes privately, let’s hear it loudly. This shd be a brave new world
— Ros Altmann (@rosaltmann) March 28, 2014
Investors in any pensions or investment policies started prior to around ten years ago should watch this market investigation with interest and seek professional independent financial advice to review in detail what they have in place.
We expect some insurance companies to behave in a more positive manner than others, acting now to remove high exit charges and bring older product charges down in line with modern products.
The regulatory principle of Treating Customers Fairly does not seem to apply to many of these older policies, and it must.
