On 1 September 2002, the FSA's CP106 came into force, dealing with, among other things, new disclosu...
On 1 September 2002, the FSA's CP106 came into force, dealing with, among other things, new disclosure requirements relating to traded endowment policies.
While any change that is of benefit to policyholders is welcome, the new rules, quite simply, do not go far enough.
They require a life office to ensure the policyholder is made aware of the existence of the secondary market and how they might access it. So far, so good.
The rules go on to say a life office may, if it wishes, go further than this ' for example, by telling the policyholder more about the market and the procedures ' but is not obliged to do so. This is where the rules fall short of being of any real benefit to policyholders.
Policyholders have become more aware of the secondary market but, in the main, have not got a clue about how to go about selling their policy at the best price.
As operators of a longstanding trawling service, we have been in discussion with many life offices over the past few years. We have been encouraging the groups to include in their literature the fact they will send detailed information on how to sell a policy to anyone enquiring about surrendering it.
Of course, it could be said that we have a vested interest. This is undeniable but a life office that refers to a trawling service can only be applauded for pointing the policyholder in the right direction. Merely to make a bland statement that a policy can be sold and the investor should approach their independent financial adviser, the Association of Policy Market Makers, which has only eight members, for example, or one of the market makers direct, is of little help.
At least by referring to a trawling service, the life office can be sure the policy details are sent out to the majority of the market.
Selling a policy is a numbers game. The more potential buyers approached the better the chances of selling the policy at the best price. A policyholder would have neither the inclination nor the knowledge to approach as many people as a trawling service.
As one of the respondents to the FSA's consultative document, and having made representations to the Treasury Select Committee, we have kept abreast of developments leading up to the change to the rules.
We would not be at all surprised if the rules were amended yet again, making it mandatory for life companies to go further than they currently have to. We hope this happens as the current rules are only the first step in what can be a long and tiring journey for anybody with a policy to sell.
Colin Jackson, director of Baronworth Investment Services
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