Halfway house
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Providers say they would consider offering a choice of commission structure for advisers on protection products if there is enough demand.
Royal Liver, Scottish Equitable, Skandia and Bright Grey all say they would consider offering the option to take half the cash up front and half as trail-based commission.
At present, advisers can only choose between full indemnity or non-indemnity commission on protection products. CBK principal
Peter Chadborn says full indemnity does not provide for an ongoing services and few advisers can afford to
opt for non-indemnity or trail-based commission
on a regular basis.
Chadborn is proposing that providers should offer a hybrid of the two struc-tures, as with investment and pension products to create more value and sustainability in IFA businesses.
He believes that more flexible commission options for protection products would increase persistency rates as advisers would have an incentive to keep the business on their books and it would reduce churning.
He says: Too many policies are changed because it is the only way the adviser gets paid once the clawback period is over.
Advisers are less likely to try and create a false need for a new policy if a hybrid commission structure is used.
Chadborn believes clients protection arrangements are likely to be reviewed more regularly with such a system. He says it is another nail in the coffin for the old-school advisers because there would be less emphasis on selling and more on creating and establishing long-term client relationships.
Scottish Equitable Protect head of marketing Rod McKie agrees that a flexible commission structure could build more inherent value in advisory businesses.
The company offered flexible commission to advisers when it launched ScotEq Protect in 2001 but ended the option at the
end of 2003.
McKie says: We did this in the past but there was no demand for it. Probably part of the reason is because IFAs were not aware it was available even though it was included in the literature we provided to them. It will be interesting to see if there is serious interest now.
McKie says such a system would benefit the client as the adviser would have greater client focus and more time to spend reviewing their clients policies.
But he says it would be a large-scale development for Scottish Equitable to offer such a service again.
Bright Grey products director Roger Edwards says the firm looked at offering flexible commission when launching but decided against it. He says: We did research it but the main networks were still interested in the traditional model. But the world has moved on and there is more talk about flexible commission now. What stifles change is the fact that most people are happy with the way it is now.
Edwards believes that if there is enough impetus in the market, it may even be possible to overhaul the commission structure completely, which he says is based on commission tables that were drawn up in the 1980s.
He adds: A lot of businesses are financed in the way of up-front fees so how do they get over that initial period? The cashflow issue may put people off but I think you have to do what your customers want.
If clients were asking for flexible commission structures, we would definitely look at it.
Royal Liver IFA market manager Andy Milburn says such a structure will only become mainstream if everyone stops using the traditional commission structure and demands something more flexible.
He says: The only way that happens is by forcing through regulatory changes or if the big networks adopt a similar approach.
Lifesearch senior technical adviser Kevin Carr says: Advisers are, to an extent, in an all or nothing situation. Most robust adviser models would prefer to take non-indemnity but it is not an option to switch overnight.
Carr says it is very costly for advisers to switch over and many could not afford to do so because they would lose a significant amount of their income stream so he is in favour of CBKs proposed hybrid model.
He says: The market landscape prevents us from moving to non-indemnity even though we would like to, so a halfway house is a viable option and makes sense.
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