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Up-front renewal plan is an alternative to investing in IFA firms

Product providers could pump money into IFAs by buying their renewal commission in advance as an alternative to investing in them directly, a leading consultancy has proposed.

The plan would see IFAs exchange the right to future trail commission for cash up front as a solution to the funding crisis in the industry caused by the commission squeeze.

While product providers such as Norwich Union, Aegon and Clerical Medical are considering investing in IFAs, the proposal, put forward by Cap Gemini Ernst & Young, would see providers increase capitalisation of IFAs without falling foul of the FSA&#39s “better than best” rule. It could also allow IFAs to remain independent.

Speaking at the Money Marketing IFA UK conference in London last week, CGEY executive consultant Joanna Hall said: “IFAs could get financial support from product providers by passing over the capital value of future renewals. Not all IFAs want to be owned by product providers and the FSA is not happy with direct ownership.”

RJ Temple communications manager Liz Walkington says: “That money will get spent investing in systems and business development, but I am not sure that you can increase revenue to match the loss of renewal income. Renewal commission is all about building value in your business. How will IFAs survive in the future?”

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