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Sales shift could see dip in commission

Advisers who rely on up-front commission could see their revenue streams severely dented if insurance bond sales fall off following the pre-Budget report.

Many experts predict a shift away from insurance bonds to unit trusts and Oeics because of the adverse tax situation for bond investors under the Chancellor’s proposals.

Insurance bonds typically pay 5 to 7 per cent up-front commission compared with 3 per cent on collectives.

According to the Association of British Insurers, bond sales reached £29.5bn in the year to June 2007 so, assuming 5 per cent commission, the revenue generated by bonds was around £1.5bn.

Anand Associates financial architect James Brook says: “If advisers are taking more commission from a bond than from a collective, I would have thought this would hurt their revenue stream but I would hope most advisers take the same commission from bonds as collectives. I do not think there will be a downturn in revenue for IFAs but perhaps tied or direct sales organisations might have issues around this.”

Informed Choice director Martin Bamford says: “Potentially reduced revenue is less of a risk now than five years ago because a lot of advisers equalise the commission.”

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