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Tags:FSA| UK| commission| Protection
IFA Brian Hill says fee-based protection advice, dubbed "unworkable" by some, can be a success, and argues advisers who say otherwise are not necessarily treating their customers fairly.
Hill, managing director of Wiltshire-based Jones Hill, says he has stripped out commission on protection advice for over a year.
Customers can instead pay either a one-off up-front fee, followed by, for example, £25 a month wholesale price premium for their policy, or they could choose an "interest-free loan", and pay £32 a month, split between the £25 cost of the premium, and Hill's fee.
However, if customers choose the second option, Hill says he explains they must sign a fee agreement upfront and may be liable for any clawback if they lapse on their policies.
It is this clause, the inclusion of which Hill says represents good business practice, which convinces him a fee-based arrangement may be more attractive to some clients.
"We say to clients that, for all the work we do, there is a cost. People still opt to pay monthly via product charges, but by explaining to them the consequences of lapsing upfront, business does not drop off the books."
The idea to offer fee-based protection advice came to Hill when he discovered a couple of former advisers had been "churning" policies - rewriting clients' plans with another insurer - after they had left the company.
In Hill's model, the firm gets paid regardless of which option the client chooses. However, he also expects greater preference for up-front fees for protection among customers, especially those with larger premiums, as they seek to escape an unexpected bill if they lapse.
He adds: "People have always paid for advice, even with commission. Those advisers saying we do not think fees are good for protection are the ones taking £4,000 or £5,000 for selling a single piece of protection. How can they be RDR-friendly?"
Peter Chadborn, principal at CBK Colchester, says it is encouraging to see a fee model work in action, but says just because advisers operate in a different way does not render them anti-TCF.
"TCF is about transparency and fairness, not about one method of remuneration being better than another," he says.
"There will always be certain types of client and types of business where fees and protection are compatible but those who say fees are not good for protection are taking a macro view of the industry and understanding how the vast majority of protection business is remunerated."
Protection advisers have largely fought the read-across of a commission ban to protection as part of the RDR, as they say customers will not pay fees for this type of advice.
However, a little-noticed line in December's RDR paper, which ruled out a general commission ban in protection, set out proposals "for a clear division of commission and fees for customers where protection is sold under ICOBS alongside investments, to increase transparency".
Advisory firms would be able to avoid the cost and complexity of using a different compliance regime for each area by opting to sell protection as well as investments under the COBS rulebook, but only if they read across the rules on adviser charging.
The FSA intends to consult on draft rules for ICOB commission disclosure at the end of March.
| Comment | Fee-based protection advice can work - IFA |
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To Complex
Surely this is too complex for Mr & Mrs Joe average. I believe if it aint broke why fix it. Individual IFA's should not give any signs of encouragement to the FSA because they will see this and believe that this is what everyone wants. If it works for him fine but he should not try and enforce his view on the rest of the IFA population. Also what right has he got to say whether or not other IFA Firms are treating their customers fairly. The arrogance of the man is beyond belief.
Posted by: Paul
Not that complex!
Pretty simple I think. Clients either pay factory gate prices for protection and an upfront free, or they pay the standard retail premium. Brian
Posted by: Brian Hill
Why?
Is it TCF in the current financial climate that a person taking out a protection policy, being made redundant and then lapsing the policy as they cant pay would have to continue having to pay the IFA when under the traditional (and best) scheme his payments would just stop. no it isnt.... frankly Im getting fed up reading the pontifications of a few IFA's whose business model means they deal with the chosen few who can willingly pay upfront fees.... The vast majority of people who buy protection are not ready or willing to pay a fee for advice...
Posted by: Rob
Well said
Well said Rob - I couldn't agree more
Posted by: Bob Stark
Wording can sometime slet us down and change perception for the worst
As you may have gathered from my first post, I think Brian may be right where he says "fee-based protection advice, dubbed "unworkable" by some, can be a success," I do however think it unfortunate he went on to say "and argues advisers who say otherwise are not necessarily treating their customers fairly" Adviser charging on protection doesn't need to be mcuh different to commission on protection. We've always reserved the right in our Client Agreement to reclaim commission from a client if a plan is lapsed, but have never enforced it as those who can't pay, there is no point, those who can pay, usually pay without us asking and those who might refuse to pay, we don't want as clients going forward.... I am willing to try some of the things which have come up in the RDR, but what I DO object to is the FSA (or anyone other than my clients or my PI insurer) telling me what to do, rather than selling me the idea of doing something a differrent way or at least trying it. I hope Brian was trying to "sell" you the idea of trying it, unfortunately, if he didn't write the whole text of the article, it could simply be unfortunate wording by the article writer. OH and by the way, I deal with clients from the former mininh towns in the area of Deal in Kent, Dover (illegal immigration centre of the UK) and Thanet (whcih includes Margate with the largest number of boarded up shops in the country according to statistics last week) and have a very broad client base.
Posted by: Phil Castle
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We're trialing a similar method to this
Having read the draft proposals for adviser charging on regular premium pension and inevstment business, we carried this offer to terms for protection which we having been issuing to clients in draft since November explaining we intend working with this model from April. The text is lifted from the FSAs own RDR paper including an example of what a Keyfacts about our costs and services might look like post RDR. Doing this we came to the conclusion it made the Keyfacts anything BUT Keyfacts as it was far too lengthy and hence we carried it over in to Our Client Agreement and terms of Busines.... We would have liked (and did ask) the FSA for their constructive opinion, but they refused to read it on the basis we had mentioned in our covering email that we were trying to make sure our clients were aware that a longstop DOES apply to some of our services (I.e. non regulated work) and even where the F-pack refuses to recognise any 15 year Longstop, even their own rule book says that going past the 6, 3 and 15 year timebars requires EVIDENCE of exceptional circumstances. Due to this they refused to comment on any part of the document. The ever helpful FSA willing to engage and be constructive my arse.....
Posted by: Phil Castle