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Endowment price war looms as CGU cuts commission

CGU is slashing commission on its endowment mortgages by over 50 per cent,

spark- ing fears of an endowment price war.

Commission rates for its Homemaker Plus product are cut from 62.25 per

cent of Lautro rates to 29.15 per cent on June 1.

CGU says this brings its endowment commission rates in line with the

Faculty of Actuaries&#39 recommendations, pub-lished last November.

The Faculty urged charges to be kept low so projections stay within the 6

per cent stipulated by the FSA.

CGU says it has no plans to roll out the new endowment commission rate,

first revealed by Money Marketing in March, to other products and is keen

to play down the impact on intermediaries.

It says brokers will not be shocked by the cut as they have known

commission would come down for some time. CGU will continue to pay its old

commission rate up to the June 1 deadline.

But both intermediaries and lenders fear the move could spark an

endowments price war in which lenders battle for their share of the mar-

ket by attacking the margins on charges.

Riach Independent Financial Advisers proprietor Bob Riach says: “Why

should we subsidise them staying in the endowments market?

“If CGU does this and still gets away it, other lend- ers will do the

same and either reduce commission to the same or slightly more to retain

the IFA business. IFAs should not recommend products on this basis but it

does happen.”

First Active managing director Tony Ward says: “It is great that CGU is

cutting commission but it could spark a price war although the decision to

buy an endowment should not be related to price but on whether customers

think the products represent good value or not.”

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