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Commission choice could cut churning

CBK is calling for protection providers to offer advisers a choice of commission structure to reduce churning and improve the sustainability of their business.

Principal Peter Chadborn says advisers should have a choice as they do with investment and pension products and says this would create more value in IFA businesses.

At present, advisers can only choose between full indemnity or non-indemnity commission. Chadborn says full indemnity does not provide for an ongoing service and few advisers can afford to opt for non-indemnity or trail-based commission on a regular basis.

Chadborn is proposing a hybrid of the two structures, where half of the fee is paid up front and half is paid as trail.

Providers have reacted positively, with Scottish Equitable, Royal Liver, Skandia and Bright Grey all saying they would consider such a system if there was demand from IFAs.

Bright Grey managing director Roger Edwards says he previously worked for a company which offered this type of commission structure to IFAs but the take-up was low.

Chadborn says: “More flexible commission options for advisers would lead to less churning as advisers would have an incentive to keep the business on their books. Clients’ arrangements could be reviewed more regularly and proactively and it would create more sustainable business models for advisers.”

Royal Liver IFA market manager Andy Milburn says: “Whenever we introduce something new, advisers are a bit wary of it, so it would need to be introduced on a drip, drip basis and evolve slowly.”

Lifesearch senior technical adviser Kevin Carr 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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