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Swell your Income stream

Financial advisers are finding it increasingly difficult to secure adequate income from mortgage advice alone. It is important that they not only expand their client base but also the products they offer.

But what is the best way to go about broadening a product portfolio?

Expanding into products associated with the mortgage sale gives brokers the opportunity to complement the income from mortgage procuration fees. As an additional benefit, brokers offering a wider range of products have the opportunity to secure a better and stronger relationship with their clients.

Brokers are able to sell a variety of associated products, including term insurance, critical-illness cover, buildings and contents insurance and mortgage payment protection insurance. But while brokers have the capacity to sell all these products, the need for them will vary among individual clients.

Some associated products, such as buildings insurance, are a requirement for all mortgages. Statistics show that around 80 per cent of all borrowers have contents insurance and over one-third of new borrowers take out some form of accident, sickness and unemployment insurance or MPPI. It is an obvious point that virtually all borrowers should arrange some life protection for their mortgage and term insurance fills this need well.

These figures illustrate that, provided brokers can offer a range of products which are as competitive as those provided by the mortgage lender, they are in a good position to maximise sales.

Regulation has been the hot topic within the mortgage industry over the last few months and until recently it looked as if general insurance was soon to be regulated.

The General Insurance Standards Council oversees the sales, advisory and service standards of members to ensure that general insurance customers are treated fairly. There were moves early this year to ensure that GISC members could only deal with brokers who were also members, therefore regulating most general insurance sales. It has now been ruled that this is anti-competitive in nature. However, while the GISC is reviewing its next move, brokers will need to be ready to make changes to how they operate to ensure they keep in line with developments as and when they happen.

Term insurance is sold in a non-regulated environment and, as such, offers brokers the opportunity to potentially earn good commission with less paperwork than is required for regulated products. For tied brokers, there is the opportunity to sell a wider selection of products.

For those brokers who have never considered selling associated products, the next consideration is the best way to research products and find suppliers. This depends very much on the size of the broker&#39s operation. If a broker is likely to deal in significant volume, it may be easier to set up a bespoke general insurance arm and offer a range of products from a range of companies.

Alternatively, for the smaller broker happy to offer a limited range, they would be best advised to deal with a network that has already carried out negotiations with key suppliers on the broker&#39s behalf. These networks can offer access to an extensive range of products and providers from similar sectors.

When brokers make multiple sales, working out quotes can be time-consuming and complicated. In this instance, it is sometimes easier for brokers to use the services of mortgage networks that can produce an integrated quote and, in some instances, submit the application online.

Commission from associated products can increase profitability considerably and the amount paid will vary depending on product type and premium. Term insurance offers brokers a commission based on the annual premium or sum assured and is normally expressed as a percentage of this figure.

Brokers need to be aware that clawback arrangements will apply if policies do not run for a minimum period which can vary between two and four years. Alternatively, commission can be taken on an as-earned basis, where the commission will be paid regularly each month in line with the premium payments.

This method of commission payment is often used where ASU and buildings and contents insurance are sold.

As a guide, a broker should be able to earn up to 25 per cent of premiums paid for as long as the policy is in force. A combination of indemnity and as-earned payments across different products gives brokers a good blend of immediate income combined with ongoing regular payments.

There are a lot of considerations for brokers to take into account when accessing any new market and this is no different with associated insurances. The providers deal with, the regulation that brokers need to adhere to and the way in which they receive commission all need to be looked at and understood thoroughly.

Brokers need to constantly look at ways to expand their earning capacity and, once equipped with an understanding of how this particular market operates, this is a useful addition to any financial adviser&#39s skills set.


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