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AIFA’s view – Fay Goddard

Back after the break and FSA regulation of general insurance was almost upon us. Firms had just days in which to ensure they were compliant with the new rules.

The majority of IFAs advise on general insurance products. Assuming that firms have now applied to the FSA to vary their permission in order to continue advising on term insurance, critical-illness cover, income protection, PMI, etc, what more should they be doing to ensure compliance with Icob rules? The phones kept ringing and inboxes pinging.

Should we use separate IDDs or a CIDD? When do I use one? Can I change the wording? What else should I be doing? For Aifa members, help was at hand and they should all now be fully informed but it did indicate a lack of preparedness.

The next big hurdle is depolarisation and implementing the payment menu. We are well into the transitional period and most IFAs are beginning to focus on the detail of the requirements and consider their fee structures and commission levels. It is important that firms use this time wisely and do not wait until the last minute to design their menu because a lot does need to be considered.

This really is the ideal time to analyse the business itself, to assess the costs and overheads and to evaluate income streams, perhaps to be clearer about the business proposition, more selective about the services offered and to whom. Too many IFAs spend too much time on unprofitable or unremunerated work. The menu offers an opportunity to rectify this. The transparency of a fee option in the menu is bound to generate more interest in fees and IFAs should welcome discussion. They may be surprised that clients are not as averse to paying a fee as they think.

Most IFAs already have a fee option but may have done little business this way. Others will be taking the fee route for the first time and need to decide on an appropriate fee model. There is a lot of interest in firms who are running successful fee-based practices, how they operate and how they retained clients when making the switch.

Some fee models are complex and difficult to transpose to the prescribed template. The menu can be supplemented with a more detailed description of how fees are charged but this means yet more paper and less chance of it being read. The best way to keep the menu short and simple is to avoid the overly complex commission tables. Firms that provide fee-based services will not have to include the tables. This applies even where commission is taken but offset against fees, so those IFAs that are already charging fees for most of their business may decide to drop the commission option for investment business altogether.

But the majority of IFAs are likely to offer a choice of fees or commission, so what about market averages? Will their disclosure have an impact on income?Our recent survey was quite encouraging. It revealed that the maximum commission for the majority of respondents was less, or around the same, as the market average. They should spell out to clients that if their maximum is the same as the market average, there are plenty of others out there taking higher!Fay Goddard is acting director general at Aifa

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