Insurers are being called on to pay lower up-front commission and remove clawback on life policies.
Danny Lovey, sole practitioner at The Mortgage Practitioner, says advisers “cannot live on fresh air” and need some form of up-front payment to cover the cost of the fact-find, compliance and application process.
But Lovey says if advisers were paid lower non-refundable initial commission and then trail commission from month nine of the policy until month 24, the financial strain of clawback could be removed.
He says some policies will inevitably lapse, for example, when a marriage breaks down, and he feels clawback punishes the adviser and means they do not get paid for the work they have done.
Lovey says: “All my expenses are up-front so taking commission on the drip is not inspirational. But more and more policies are dropping off and it has nothing to do with churning, it is because of Britain’s changing demographic. Paying back money from your earnings can be painful.”
CBK principal Peter Chadborn says advisers can reduce the number of policies falling off their books by selling policies with more flexible features.
He says: “If the client’s needs have changed and the adviser has sold them a product with flexibility built in, they will not be worrying about clawback.
“If business is coming off the books, you have got to analyse why and often it is because the adviser has recommended products based on price.”