A scathing point, in the certainly polite vocabulary of the insurance policeman, but the reminder the order is clear and clear: insurers, banks or brokers selling life insurance must not forget their duty to advise. And above all, do not encourage their clients to invest their precautionary savings in funds where the money is not immediately available.
SCPIs, structured funds or other units-linked (UC) vehicles displaying enticing promises of return: the interest of these life insurance funds is in no way called into question. But they should not be offered without serious and personalized advice. This is, in summary, the statement of the Prudential Control and Resolution Authority (ACPR), the banking and insurance policeman, in a press release issued on Tuesday May 3: the authority backed by the Bank de France calls on the distributors of life insurance contracts to better respect the duty to advise customers who are financially fragile or in difficulty.
Implied, some distributors – but the regulator gives no indication of which family of distributors – clearly failed in their duty to advise by forgetting to warn customers subject to financial difficulties on the supports where it is necessary to foresee a delay to release their money. Here again, you have to read between the lines of this press release, but the incriminated UC funds resemble in particular real estate funds and SCPIs, structured funds, but also more generally life insurance contracts with high entry fees.
Investing: Why Structured Fund Sellers Need to Warn You About Losses
Fragile customers without precaution
Some life insurance contracts are likely to worsen their financial situation, since they do not have precautionary savings to meet their short-term cash flow needs, writes the ACPR. They may thus be exposed to particularly penalizing entry and management fees if they are forced to quickly redeem their life insurance contract due to a lack of cash, whereas these contracts are intended to constitute stable long-term savings.
Are banks taking advantage of seniors?
The insurance policeman insists on UC funds, potentially profitable in the long term but risky in the short term: some distributors have sold risky media to customers when they were not suitable. Clearly: they had not perceived the risk of capital loss of these UC supports.
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The ACPR therefore reminds the basics of the duty to advise life insurance distributors, in other words banks, insurers, brokers or fintechs. They must take into account the possible fragility [de son client], his financial difficulties and his level of liquid savings; and propose a level of investment risk adapted to his knowledge and experience in financial matters.
This press release does not mention any sanction or strengthening of controls, but the ACPR says it is particularly vigilant in this regard. Translation: this is a public warning before svir.
Life insurance: should you trust your banker to choose UC?
On April 21, this time alongside the Financial Markets Authority (AMF), the ACPR had already addressed another point of vigilance vis–vis professionals selling savings products online, noting numerous cases non-compliance with the regulations concerning the information and clear consent of the client.
Precautionary savings: 2 months minimum income on a passbook
A small mattress of 2 months’ minimum salary, to cope with a financial blow, keep in a savings account or at least in your current account: this is the definition of minimum precautionary savings. The ideal medium is the timeless Livret A or, better, the Livret d’epargne populaire (LEP) if you have access to it. Once the precautionary savings have been built up, you can invest with a clearer mind.
Precautionary savings: how much, on which account or passbook?