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Can loading premiums be justified?

If IFAs / networks have commercial agreements in place with providers where they offer their clients higher premiums so that they can take a higher cut of commission, is that wrong?
Of course, the adviser’s first duty is to their client, but they’re also offering a quality service of advice that is rightly paid for via commission. Personally, I see no problem with different commission rates. Different advisers write different volumes of business with different commercial pressures, different lapses and NTU rates. Commission reflects this and rightly so.
However, when the result of this is premiums set deliberately high to ensure more commission, is that TCF? LifeSearch do not do this but, in a free market, if someone wants to offer a product at a higher rate, why shouldn’t they? The consumer is free to turn it down and go to another IFA who offers them better rates. Yet at the same time is the IFA really acting in the best interests of the client by offering them a distorted high price?
Almost all advisers who sell protection and understand its importance to their clients also understand that it can never be sold in volume in any way other than commission. The public, other than the very well-off and financially savvy, won’t pay a fee to get protection and will therefore be left without cover.

Commission in protection is in the public interest and, in theory, those who charge a higher price to get more commission will lose business to those offering standard rates. While the criticism of loading in order to gain higher commission is valid, I suspect that in the internet age of instant quotes and price comparison sites, those who take the high price road could end up losing out in the long term.


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. Whilst theoretically the miscreants should lose business to advisers offering the same product more cheaply, in practice this is rarely the case.

    Consumers tend not to shop around and this is the crux of the matter – I tell my clients that this is what I do for them, shop around, for the best product for their circumstances.

    The issue is complex but ultimately I would be failing my duty as an adviser if I used a provider simply because they pay more.

    We know that not all providers will accede to these commission demands therefore the advisers are working from a palette where only some of the premiums are ‘loaded’ due to extra commission.

    Is it likely that the non-paying providers are getting a fair crack of whip or is the bulk of the business being diverted to the premium loaders?

    This is rancid and needs to be stopped. How can we, as an industry, argue that bias does not exist when firms are clamouring for ever greater rates to the detriment of their clients?

  2. If my network asked the providers to provide us with higher commission at the detriment to my clients, as they would pay a higher premium with me than if they went with another adviser, I would want to know about it. I happen to believe in the products I sell and that I advice my clients to take protection out because they need them not becuase I would want to further line my pockets.

  3. Mr Old Fashioned 10th August 2010 at 2:42 pm

    IFAs are supposed to try to do the best deal they can for the client. It used to be called “best execution”. Perhaps it still is. That’s one of the reasons why they come to us in the first place.

    You can’t call negotiating higher comissions in return for higher rates best execution, can you?

    So, yes, it is wrong.

  4. A vexed issue, though surely solveable by enabling the adviser to adjust the commission (within limits) according to what he considers it appropriate to charge for the service being provided to his client.

    I still think we need to charge even protection clients some sort of upfront fee for the work involved in formulating the right package for them. Yes, it’s difficult, but if you don’t, there’s always the risk that they accept all your recommendations then shop around for the lowest price. If you don’t, you can find yourself having done the professional bit without getting paid anything for it ~ hardly a sensible business model. It’s happened to me more than once (bastards).

  5. Let’s look at the facts

    FACT: there is no evidence to suggest that the customer experience is any better from intermediaries with loaded premiums

    FACT: there is no evidence of better persistency rates

    FACT: there is no evidence of lower cool off rates

    FACT: there is no evidence of better NTU rates

    So why is it happening?

  6. Ironically, the repercussions of going this route could be that the rest of us get paid less. If life companies start to quote on The Exchange with widely differing commission rates, the chances are the cheapest cover will be the one that pays NO commission. That will then make it a hell of a lot more time consuming and awkward to explain to your client (and the FSA)why you are recommending a more expensive policy. In my view, it is essential to keep commissions broadly similar for each product range – after all if Bonds paid commission of 3% not 6% the FSA would never have been able to accuse us of product bias, and the RDR would not have been implemented in the first place.

  7. If the right advice (for the very same product/provider) is the lowest price available why do you not direct your customers to the low commission/commission free options available (best execution)?

    Face the facts – your premiums are ‘loaded’ relative to theirs. Does that make your actions rancid?

    Be careful what you wish for….the argument is not as black & white as some of you paint it, there are many shades of grey, including yours!

  8. Loaded premiums + clients who think IFAs are unbiased = more commission.

    I used to be an IFA but felt the job was all about commission, fees and getting rich quick. As a result I have returned to the Bancassurance model where I have to work far harder to earn the same money, but am more able to sleep at night knowing I am offering good products at a fair price.

    IFAs think they’re better than tied / multi-tied advisers, but I have clients who trust me, not the title, and are comfortable dealing with me no matter where I work. They know I have the technical knowledge and, as I am paid a good basic salary, make recommendations based on their needs, rather than my own requirements to pay the mortgage.

    I welcome RDR, where hopefully the cowboys and those stupid enough to think that the gravy train can continue unabated, will finally exit the industry and leave it to those who genuinely care for their clients.

  9. Surely this is leading us down a very worrying path.
    It gives an ideal opportunity to rebroke the business at the end of the earnings period at “standard” terms rather than the loaded rates. It increases lapses and so ultimately the person who will lose out will by the customer as the insurance cos wil put their premiums up?

  10. Good news. Have been on the phone to Number 11 and George has agreed that free market forces are bad and that we must stop charging clients too much.

    So from Jan 01 2011 the maximum amount of commission or fee that anyone can charge for any case will be £500. Steps will be taken to prevent IFAs in particular from segmenting plans to allow for multiple £500 charges.

    The fee or commission taken by an adviser or sales person from an informed, consenting adult has nothing whatsoever to do with anyone else, least of all a bunch of do gooders at the FSA.

  11. It really is genius… You tell your client they need to take out life insurance because they have a spouse and two young kids and all of a sudden some IFA’s out there want paid £800 for that brilliant piece of advice. Sorry if it sounds cynical, however, most IFA’s I’ve ever met wouldn’t hesitate to use the provider that paid them the most commission irrespective of the other considerations.

    I’d very keen to see the matrix between what advisers get paid on protection business and the amount of time they spend in having to set up the plan. I’m pretty sure it’s money for old rope.

    Thanks goodness for money etc… but, for all my cynicism, will Mr ‘Joe Average Income Earner’ be in a better place when he/she and his/her peer group have to go to the local bank branch for financial advice in 2013?…. somehow I strongly doubt it.

    Answers on a postcard please.

  12. How is this different to one company charge £150 per hour and another charging £100 per hour and the recommending the same nil commission product on the same terms?
    Also, as an ex-life office broker consultant, I can tell you that the difference in commission rates on protection between large protection producers and small directly regulated firms is huge. Where the larger advisers take more commission the life office earns less margin on the case but get the potential for greater distribution.
    When it comes to loading premiums, I have only ever seen this for multi-tied outfits who offer a panel of maybe three companies cover.
    As long as commission is disclosed, access to the internet means that a client has the choice to decide how they want to procede. If they choose not to do this then where is the problem if somebody is paid for advice.

    With regard

  13. Dave, whilst your point is pertinent the actual issue is providers charging clients more for the same product purely because a firm has pressured them into paying a higher commission rate.

    Protection commission rates are not unreasonable and only the genuinely greedy adviser would ask for more.

    Whilst I am generally an advocate of free markets I truly believe this sends a message that is detrimental to IFAs in the eyes of journalists, consumers and regulators.

  14. Where are all the so called protection commentators on this? It could be the biggest thing to hit the industry in terms od customer detriment – other than LifeSearch and Alan Lackey they are all quiet. What is the The Protection Review view

  15. What about short term policies, or those for young clients with very tight purse strings?

    Often the commission paid from these types of plans can leave an adviser out of pocket in terms of the workload undertaken compared with the commission earned. Is it wrong to recommend a loaded premium that allows the adviser to earn an appropriate amount, whilst the client pays only a slightly higher premium, but is able to obtain the advise they required? I don’t think so!

    How many advisers always perform a commission sacrifice to rebate the client for cases placed on risk relatively quickly, with little work involved? Few I imagine.

    Ultimately, it’s all about TCF and what rests easy on the advisers conscience. Unfortunately, in this day and age of the quick buck too many “advisers” find too many things palattable.

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