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Protection to escape commission ban

Advisers recommending protection policies are likely to be allowed to continue earning commission following the retail distribution review, Money Marketing understands.

Last month the FSA, the Association of British Insurers and a number of associated working groups met to discuss the likelihood of banning commission on pure protection sales as part of the RDR.

The regulator is understood to have told the meeting that it struggled to see how advisers could have product bias when selling protection and therefore commission is likely to stay under insurance conduct of business rules.

In its RDR consultation paper earlier this year, the FSA asked what consumer detriment, if any, would arise if it implemented the RDR proposals for the sale of retail investment products and took no action on regulating the sale of pure protection products under Icob.

The ABI declined to comment on the meeting but assistant director of health and protection Nick Kirwan says: “The industry is completely united in feeling that people will be very reluctant to pay any sort of fee for protection advice.”

Bill Warren Compliance managing director Bill Warren says operating under two remuneration models is “messy” and could cause potential conflict.

But he adds: “The bottom line is that commission from protection is fairly minuscule so not too many advisers are going to be that concerned about trying to take advantage of the commission situation.”

The FSA declined to comment on the meeting but a spokesman says: “We are looking at potential read-across of the RDR and we are planning to feedback our thoughts on this by the end of the first quarter next year.”


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. But for how long ?

    once the CAR culture is established there will be a permanent inclination to spread it accross the board

  2. On the face of it, this is good news. However, it won’t be long before protection is commoditised (it is to some extent already) and this may force prices and commission down.

    That said, not too many people wake up in the morning thinking ‘I must protect myself today’ so protection will still need to be sold, rather than bought, by many.

  3. I think this hasnt been thought through by the regulator at all. To bring in one set of rules for one element of advice, and not apply them to all areas, just means that holistic planning will be incredibly messy. Imagine for example the conflicts/bias that will arise when advising a hnw individual on IHT matters, and having to balance lump sum solutuions with insured solutions, with or without investment included. Its not really that complex to solve either as long as you allow the inclusion of adviser charges within protection contracts too, with some kind of independent factoring allowed. The main aim is simplicity and lack of confusion…PLEEEEEZ

  4. has anyone talked to the consumers or has this all been contrived by the FSA and the manufacturers?
    The current situation of offering a fee alternative seems to satisy consumer choice and protection!

  5. Ketan Yadav - Avenue & Co Private Finance 5th November 2009 at 10:05 am

    This is welcome news for many good advisers who for years continue to strive to provide clients with independent and solid financial advice.

    RDR need to be fair to consumers and professional advisers and we believe clients should not have to pay fees unnecassarily.

  6. I wonder whether that ‘wealth manager’ who told me he didn’t ‘sell’ protection because he didn’t take commission will introduce to someone who can ‘persuade’ people to buy cover?

    Is the RDR going to leave gaps all over the shop?

    I still can’t understand why investment business has been singled out for this special treatment.

    Buy hey, what do I know? My experience doesn’t account for much in the scheme of things!

  7. Intangibles, protection on your death etc are sold and not bought. If you want a sale you pay the salesman and payment linked to success is called commission! To apply CAR to protections would mean the end of protection sales with the resulting burden being passed back to the welfare state. It is sad reflection on the mentality of those in control that we find ourselves congratulating ourselves on what is an obvious truism. Commission didn’t just happen it was forged out of years of distribution. If you want to see what happens when the chattering classes start pontificating on the merits of commission just go see how regular premium pensions have fallen post stakeholder.

  8. RDR (Ridiculous Direct Regulation) has been brought about by people in their ivory towers in Canary Wharf hwo really do not live in the real world. At least the industry seems to be talking some sense into them over the protection business. The vast majority of IFA’s have been in this business for a relatively long time(you only need to look at the average age when you go meetings or conventions) and we have mostly been dealing with the same people and their off spring for many years, through good times and bad. Every single client I have done business with since the start of the current regime has said its ok Marty we will just keep doing business they way we always have. I do not want to pay a fee. Generally speaking there is nothing wrong with a commission system as long as the clients are aware of what the charges and commission are. This system has been around for generations and all clients are well aware that we earn our living by commission. Roll on the election when the Tories get in and scrap the FSA. Big drop in our fees and we can all ge on with writing business for clients and eraning a half decent living for doing so.

  9. In my opinion RDR seems to be totally unfair as it benefits the rich clients who are course would love to pay by fees. What about those clients who are on modest incomes who cannot afford upfront fees. Surely this is against one of the FSA’s own principles which is to spread financial awareness. By the way how is the FSA doing on this principle? or should I say not doing. Not everybody in the UK earns over £100,000 and has portfolio is in excess of a million so what happened to financial planning for all. Also my own firm donates 10% of it commision to Charity. If RDR comes into force on protection as well we will have to review this thanks FSA. Essential IFA Ipswich

  10. I cannot see why there should be confusion.

    Say, for an example, a client wants a LTA policy. You simply say to the client that he can pay £22pm or he can pay £20pm (no commission option) and an up-front fee of £300.

    Or, you can tell the client in your TOB that he has the choice of paying for your services by way of fee or commission on investment-related advice whilst commission is taken (always) when taking out protection products.

    One thing is certain in my mind, there will be serious consequences if the lower paid and non-professional population are forced to pay up-front fees for protection advice. The government will lose out when people die or become incapacitated with no cover in place – those same people who might otherwise have contemplated buying insurance had a substantial fee not been demanded.

  11. For those in the industry to even contemplate the removal of commission for protection sales they need to think very carefully. The insurance product range is sold to the consumer and is especially important to the working class client. In the event commission was banned from this market there would be immediate exclusion of those in society that actually need the cover. The advisor who is giving advise across the board as an IFA can still package his advise on a fee only basis after 2012 and sacrifice commissions if necessary. But the pure protection “family survival broker” CANNOT and will not survive. The FSA must understand that there are many diverse markets in our profession – not all advisors want to be holistic IFA’s. Therefore the reward system for protection brokers in the business and family sector will need to remain for distribution to survive.

  12. “The commission on protection s relatively small???” Not if your selling £3000 pa WoL policies in trust it’s not………….

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