I have been reading with great interest many attitudes towards renewal commission. I, for one, am for the continuation of renewal commission with one proviso. I believe that renewal commission for every life policy should be increased from 2.5 per cent to 5 per cent of the premiums paid. The exception to this would be trail commission on investments, which is usually 0.5 per cent of the fund value. That should always remain the same. My reason for the increase is as follows.
We are what one would describe as a small specialist business giving true independent financial advice both on a fee and commission basis. The client is given the choice to go either way.
With over 20 years in financial services and eight as an IFA, we understand, more than insurance companies, the true meaning of loyalty, both from us to our clients and they in return to ourselves. With average premiums increasing over the years, we have obviously seen an increase in ongoing renewals. However, against that increase we have also seen an increase this year for the cost of our PI cover of 64 per cent.
We had to suffer an similar increase two years ago with no complaints having been received by our company. We have seen increases in the ICS levy each year and an increase in our FSA registration. We are soon to see further increased costs should we continue to advise our clients about mortgages. Where, please, do critics of renewal commission believe these extra costs come from?
We as a company do not advertise, having tried it some years ago with no real monetary gain, and do not cold call for new business so we rely solely on referrals and recommendations from our clients. People only refer a friend or colleague if they are truly 100 per cent happy with the service they themselves receive. That service comes at a price although I wonder who would pay for the service if renewal commission was discontinued.
With regard to investments, we value our clients' portfolios every month and it is in our interest that their funds increase in value. We regularly discount initial charges through commission sacrifice and take no commission when funds are moved from one investment manager to another to avoid any accusation of churning.
We do, however, take full fund-based renewal commission with clients' knowledge that when their funds increase, we receive an increased income. If our recommendations are wrong, we see a reduction in our income.
I am now moving into the realms of performance-related pay, which we all know is a dirty word when in business.
If those people who have nothing better to do than criticise us can show me a way of earning a living, while at the same time increasing my business value by not servicing clients, then please show me the way forward and I will be the first in the queue.
Martyn Parfect Independent Financial Consultancy,Erdington, Birmingham