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Bring back the MCA to silence the critics

Having been actively arranging business in this wonderful profession of ours continuously since 1969 and having been one of the founding fathers of the Life Insurance Association, I could weep when I see the vested interests shovelling propaganda out almost on a daily basis about the sins of commission,

What sins? If I spend many hours researching a case, writing a report, going through it with a client and his wife only to find that they have decided for some reason not to go ahead, then I don’t make a single penny. That is an occupational risk that I run.

If I had chosen to go the fees route, I would still have made an income since they would have signed a legal agreement to cover the cost of my time regardless,

You know, since the fees/commission rules came in, we have religiously offered the option of one or the other and we have only had one single case where the client has opted for fees and that was a very small case where he just needed advice.

I suppose the fees route could make sense in the cities where salaries are high and IFAs tend to deal with high-net-worth clients but there are thousands of small IFAs dotted around the country who give many years of faithful service to their clients, some of which desperately need to protect a young family but would not be able to afford fees. What are they to do? Go to the banks who will treat them as family as we do? Dream on.

I read John Winful’s article in last week’s Money Marketing with great interest and I agree with him entirely. Whether it is commission or fees is surely nobody’s business but the IFA and the client, so long as the options are properly explained.

Apart from the obvious vested interests, could there be some justification for the feelings against commission? I think so. I read with revulsion that commissions of 8 per cent are being given on some single-premium bonds.

This is just obscene. Having moved to setting up my own business in 1973, I set a policy from day one that we would never take more than 3 per cent initial and 0.5 per cent renewal commission on any investment plan of any kind. Anything over that level goes straight to the client by enhancing the value of his or her investment.

One has to feel sympathy for the life offices who have allowed themselves to be talked into paying these ludicrous levels of commission.

How can they make a profit when they have to pay out those sorts of sums of money? I apologise for using a dirty word like profit but life offices are not benevolent institutions either.

We used to have a rule called the maximum commission agreement which set out exactly that, and everyone had to adhere to it. Then it was discovered that although the life offices could not pay more than the amounts which were set out in the agreement, some offices were quietly passing over computers and other equipment or running ad campaigns or big mailshots for IFAs and this rather defeated the object.

If an organisation can’t survive on 3 per cent plus a half on investment business, then there is something wrong somewhere. The renewals build up over the years until they become a major segment of the practice income.

In our case and probably with all small IFAs, the renewal pays for the sometimes considerable work that has to be done for a client some years down the line and for which there is no charge.

All that is required is patience while the renewals layer up. Why can’t we bring the agreement back?

Let’s have a new maximum commission agreement. If we do this, then the main complaint that they have about going for the highest commission regardless goes straight out of the window and the vested interests will really have very little in the way of ammunition to fight with.

David Lindsey
Foresight (IFAs)


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