I refer to Roger Yates' letter (Money Marketing, September 16) on the subject of renewal commission.
As someone who joined the industry in 1970 – before Lautro – I was always taught that renewal commission was paid as an incentive to agents to service the client's ongoing needs and, as a result, hopefully produce further business for the agent and provider.
In recent years, the providers have missed the wood for the trees and adopted a different approach.
To a large extent, I agree with Mr Yates' sentiment and try not to support providers who refuse to transfer serving/renewal commission in the event of my becoming the servicing adviser.
The problem is, however, that to follow that regime literally would lead to only a handful of companies being used and, by default, I would become a “multi-tied” agent. For example, Legal & General will transfer some cases but not others depending on who the selling “adviser” was.HSBC will not transfer servicing commission on bank-sold products. Many other household names either do not transfer for part or all their contracts.
However, it might be argued that fund-based renewals are not “renewals”as they are funded by taking lower initial payments. Or are they? Products paying fund-based renewals originally paid up-front commission in excess of the then “standard” single-premium commission as a means of recompensing for future servicing, that is, the renewal was paid in advance.
Compare the commission offered with annuity purchases. The additional amount was calculated based on the assumption that such products would be held for five to 10 years, after which the proceeds would be taken.
Fund-based payments are not therefore in lieu of initial commissions which should be protected but are advance payments of renewals. What I believe should (have) happen(ed) is that with the increase in rates, clawbacks should have been built in, covering both cancellation and change of servicing adviser during the first five years.
With the regulator looking more and more at post-sales issues, including servicing of existing clients, I believe that the industry needs to grasp the nettle and acknowledge that any post-sale payment such as renewal level or fund based commission should be paid to the serving adviser and not, as is currently the case, with many providers, to the original adviser.
OPH Financial Consultants,