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Should advisers charge for handling protection claims?

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Adviser charging post RDR has been a hot topic for some time and was recently taken to the next level following the publication of the FSA’s latest quarterly consultation paper. Many in the Protection side of the industry seems to feel that the great adviser charging debate doesn’t apply to them because commission will remain, yet the vast majority of advisers selling, sorry, ‘advising’ on protection solutions do so as part of a holistic proposition, so are of course affected.

Regardless of RDR compliance, there is an increasing demand for transparency of remuneration and clarity of services from consumers so either way, advisers across all sectors are having to review and refine their charging and service models.

I was recently discussing these points with Protection Review chief executive Kevin Carr and the thus far overlooked issue of remuneration relating to protection claims occupied our thoughts.

I have said before that in terms of job satisfaction and sense-of-worth, helping a client say; buy their first home, facilitate effective education for their children or secure a comfortable retirement simply pales into insignificance when compared with witnessing a protection policy I put in place pay-out and provide financial security at a time when my client’s world is falling apart. Without a second thought I can say that this is such an emotive and emotional experience that the thought of remuneration doesn’t come into it.

Unless you have experienced the traumatic phone call from a client with the heart-sinking news that they or their partner have been diagnosed with something horrendous then I won’t begin to try and explain how it feels because I will not do the sentiments justice. How can you put a price on the assistance we provide at times like this?

I’m certain that this is the same for most advisers. The initial commission received on commencement of the policy would have been seen as payment for providing advice, research, processing and if necessary, claim support. Or would it? Surely making a charge for claims support when commission was already taken at outset would be abhorrent for most advisers, wouldn’t it?

Even if the policy was set-up years ago, for most firms there is likely to be some form of on-going relationship and service, albeit maybe a distant one. But would not charging mean cross-subsidy has taken place?

Maybe if the request for assistance was from someone that the adviser or firm had no previous relationship with then there is no sense of moral obligation, but I doubt this is a common occurrence.

So this begs the question; if cross-subsidy is forbidden and once all services have become costed-out and transparently remunerated, how do advisers and indeed should advisers make an explicit charge for handling protection claims?

Plan Money director Peter Chadborn

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Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. Grahame Goodyer 14th June 2011 at 3:26 pm

    The position, to me, is simple. From 2012 you must think and act like any other professional such as a solicitor or accountant. They charge for setting up a plan such as a will or your tax return. They charge for dealing with the aftermath such as probate or when the tax man comes and disputes your income and expenses.

    You are moving into a new world. Get real and accept that you must start charging for work that in the past you would have accepted as part and parcel of the commissioned earned. There will be emotional upset to deal with but you cannot let this be your driver or else you won’t have a business left to run.

  2. are u a claims consultant or an IFA, make your mind up, you can’t be both. We’ve all been there, pass your client over to the life office and let them handle it, you’ll have plenty other buisness to be getting on with- i hope!

  3. Simple, from the 1st Jan 2013 the cost of any service is £150ph plus VAT.
    When the client complains that this is Pants,I will agree entirely with them

  4. John Joe McGinley 14th June 2011 at 3:53 pm

    The paradigm shift of RDR is about service. Expertise, empathy, experience and problem solving are valuable attributes of that service proposition and should be priced and paid for accordingly. Each business will have to decide what their client proposition is for each segment they have. This proposition will need to have a price attached. Not an easy task but not impossible with the right help and guidance.

  5. Nothing is easy. If an adviser has taken commission then I believe that it is implicit that he or she will assist the client and endeavour to make sure the claim is paid promptly.

    Equally, if the protection plan had been set up commission-free and a fee charged then the client proposition must extend to charging for claim assistance.

    Every adviser will offer an individual view on this and there will be few ‘rights’ or ‘wrongs’.

  6. An ethical seller of protection must assist clients or their families who need to claim. If they need to demand a fee to afford to do this, so be it. LifeSearch has a full time (free to clients) claims adviser as our scale means we have many and just occasionally the insurers mess it up and quite often their appraoch can confuse and distress the bereaved or ill. I’m quite sure our service pays for itself in referrals, but it’s effect on our team, when we fight and win, or receive letters of thanks is a priceless gain. I think those who flog and forget like Fraser Brydon claims to are simply unethical .

  7. David Brunning 14th June 2011 at 5:11 pm

    Pre- or post-RDR, any work arising should be paid for by the client. Solicitors aren’t squeamish about charging for probate work, why should IFAs be any less robust about charging for the work associated with protection policy claims? It’s all work, and the client or their beneficiaries will undoubtedly benefit from it. Why can’t our profession grasp the fact that there is NO free lunch for clients – and there never should have been.

  8. The time for an Insurer to be judged is when there is a claim and if a life office said they were going to make a charge to deal with a death claim or a critical illness or income protection claim there would be justifiable outrage.
    By the same values an IFA is to be judged on how they deal with a claim. Based on the preceding responses to this matterit is clear some IFAs have more class than others.

  9. Roy Mcloughlin 14th June 2011 at 5:40 pm

    Charge fees for helping a client out at such an emotional and distressing time of their life……shame on you. Anyone who has had this unfortunate experience to deal with will testify to the fact that this is where our profession excels itself and arguably when we are at our most use to clients. When a lawyer charges an exorbitant percentage to administer an estate does that add or detract to their reputation?
    The protection industry is a vital cog in the holistic advisory process so let’s hold our heads up high and that includes our response to helping those in their hour of need.

  10. Here is an interesting question. How many customers who have to make a claim actually go via the person who sold them the policy in the first place? Or to turn it around, how many sellers are aware that their “client” has actually had to claim?

    I suspect that it not a very high percentage as an average but high amongst IFA customers as this is part of a holistic service. However even they have had customers who have told the insurance co not to tell the adviser of the claim!

  11. There are two distinct aspects to this. One is the general assistance in making the claim, the other is financial planning afterwards. We will help make the claim in terms of pointing clients in the right direction and outlining what they have to do but we will charge for work relating to financial advice as a result of payment or specific actions they ask us to take such as obtaining probate. We always point out that it is cheaper to do it themselves but in some circumstances professional advice is required.
    But let’s make one thing clear. We have had many former clients come to us asking for information following a claim and on closer examination have been appalled at what they have done. They have engaged solicitors, friends or others to apply for probate and it has taken a ridiculously long time to settle the estate. In another case, two distant clients died at about the same time. One engaged a solicitor friend, the other engaged us. Both cases were straightforward enough, in one case probate was granted within 3 months, 9 months plus for the other. Guess which one we were involved in? Solicitors haven’t a clue and write three letters (plus clarification letters) where we would make one phone call and of course solicitors charge considerably more. So if clients want to do it themselves, we will point them in the right direction. If they want it done professionally and in most cases more cheaply, we will do it and charge them. The initial commission never paid for ongoing advice but under our adviser charging principles, trails, indexation and other income is offset against the invoice.

  12. Client: Hello Mr Adviser, my wife has just been diagnosed with cancer. I seem to remember you convinced me to take some critical illness cover, what do we do next?
    Adviser: That will be £200 an hour please.
    Is that really the world we want? We all know life office admin is poor at any stage, especially claims. I once saw a claim acknowledged SIX weeks later on a handwritten compliment slip. Poor service reflects badly on the adviser too. I doubt if any serious protection adviser would ever leave the client purely at the hands of the life office during such a tramatic time.
    And what about declined claims? I know several advisers who make it part of their service not only to manage the claim, but to fight and overturn decisions as well.

  13. A very good point… some advisers would seemingly be happy to leave their client in the hands of the life office, but then happily get involved again to invest the pay out. That’s double standard for me. They’re either a client or they’re not.

  14. For my money this is about an adviser’s core ethos and nothing to do with RDR et al.

    So even if cross subsidy is wrong, I wouldn’t want to deal with an adviser who wouldn’t help a family in their hour of need to sort out what may be a complicated and confusing process to them at a highly emotional time.

    Of course the Life office is there to help and any worth its salt will want to provide good clear service but when the claim isn’t clear cut a skilled adviser’s help, as Tom Baigrie says above, can make an huge difference.

    Call me old fashioned but isn’t this treating customers fairly is really all about.

    This Pro Bono service will pay back far more than your hourly rate card and will lead to growth in an advisers self esteem and thus ability which will lead to more and better protected clients.

    Maybe advisers should think about stating this as a service/benefit in their disclosure documents and be proud of their service rather than trying to charge for every single minute!

    PS Re Sam’s comments above on helping clients achieve speedy probate I agree, in my experience advisers are better placed than solicitors to help. However I sincerely hope that all are using trusts wherever possible to ensure “the right money is put in the right hands at the right time”.

    Life office friends still tell me they cannot believe how many applicable policies are still not written in simple and free provider trusts.

  15. By all means charge a fee for writing the business, but don’t confuse charging for claim handling, surely a quick call to the provider, with the more complex work solicitors carry out for probate. And no, I’m not a solicitor.

  16. A VERY thought provoking article and useful comments. If you can achieve economies of scale, then I really like what Tom Baigrie says he does.
    I have no formal policy as I’ve not had that many clients pass away, but I have pretty much worked like Sam Caunt says he has.
    In this situations, it’s help first and wory about what (if anything) we get paid for it afterwards.
    Assist with the claim and just intermediate between deceased resps and teh insurer I view as what any renewal was for, but ADVIVE and assistance with probate, trusts investment advice etc, as Sam says, we point the client in the right direction if they want to do it themselves and offer to do as much or as little of what they would be capable of themselves for a fair price.
    The more I think about it, this really is one of those cases where you have to treat every situation as unique, but having a general principle in mind and making sure the client (our clients pay a reatiner for an ongoing service, hence we MUST deliver on that) knows you will always give them the time of day and answer questions within teh cost of teh retainer, but extensive and extra work does need to be paid for.

  17. It was very worrying to hear Shjeila Nicoll tell the TSC that general insurance was still being reviewed with regard to it falling under the four ton hippo that is the RDR.

    If so we will be entering a world where everything has a price and this includes the administration of claims.

    Not only is this highly contentious but also quite wrong, but in this ‘supermarket’ world’ all products, services and interaction will be on offer.

    Hey, says Mr Wealth Manager, I want to be seen and treated just like a solciitor. I can then bill every six minutes of my time and make loadsamoney. Is this what we, and more importantly, our clients, really want?

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