The issue of premium loading has flared up this summer and is dividing the industry. Current commission rates on protection are quite adequate. I have no problem negotiating on the basis of volume business, which I am sure lots of big networks do on a regular basis, but what I object to is when this is extended to asking for so much money that the only recourse left to the company is to increase premiums to clients. I cannot see any justification for that.
We have spent the last year or 18 months saying that protection should not be under the RDR and this tells the FSA that it should.
When you are reviewing a company for a client, you need to be objective when choosing a company and price is quite low down on the list.
Where is an argument that premium loading can pay for a better service but I do not agree with that in general.
There are a few instances where that might be the case. Let’s say an adviser in an area of low property values and low average salaries compared with London is selling mainly lowvalue policies. These firms have the same office and regulatory costs as I have but will be getting lower levels of commission.
But I still think it is wrong to have differential pricing. I do not mind differential commission, that is a fact of life, we will never get away from that.
But differential pricing is wrong. I know there is an argument that this goes on with investments but that is different. Investments are nebulous.
But when it comes to protection, the price is the price. When a company works out its price, it has said this is the true cost of the plan, this is adver-tising, this the cost of comm-ission, this is our profit margin and this is the premium and none of those are open to any significant change, except for the premium.
There are people who will say we have a £2.4trn protection gap, we need to sell more and if it gets people buying it, then it is a good thing.
I can understand that argument but if we get back to treating customers fairly, this means not taking advantage of them by giving them to a company which is going to charge them more. If you have a business model where you are their IFA and are in law the agent of the client and are doing the best for them, then I don’t think the argument for loading premiums works.
About 18 months ago, we were picked up by the FSA for claiming that protection cannot be missold. But this is sending out the message that the FSA was right, that it can happen. We do not need commission removed as a result of people being greedy.
Alan Lakey is partner at Highclere Financial Services