Each day this week, IFAonline will give you an insight into the wealth of comments on polarisation w...
Each day this week, IFAonline will give you an insight into the wealth of comments on polarisation we have received this week from intermediaries.
If you have any comments you would like to add, either email them to the editor, Julie Henderson: [email protected], or post them on the discussion boards.
This comment comes from a sole trader IFA.
I am an Independent Financial Adviser authorised via a Network, ie:Eurosure Investment Services of Boston.
I would like to state first and foremost that I agree wholeheartedly to the new FSA ideals that the client should not be "financially disadvantaged" by commission biased advise, however I do feel that the proposed changes regarding polarisation and commission/fees are tantamount to "Throwing The Baby Out With The Bath Water".
I appreciate that there are anomalies in With-profits policies and the charges imposed via insurance companies. Surely it is preferable to regulate the product and the providers rather than destroy the IFA process of providing much needed life insurance, pensions and investments (60% of all policy sales are via the IFA channel).
Let us not forget the very nature of the insurance sales process is unique. Why? Simply because life insurance, health insurance, critical illness, mortgage protection, inheritance and tax mitigation are an intangible. It's just an idea or more likely a piece of paper (policy) that gets filed away until it is desperately needed.
If I was a doctor my patients/clients would rush to visit me because they are unwell. If I was a solicitor my clients would rush to visit me to get divorced or buy a house. This is not the way with insurance/financial services. Clients do not flock at my door wanting protection policies, pensions and investments.
Yes, large corporate clients may want a 100 person pension scheme and prefer to pay an IFA a fee, so that commissions do not detract from the individual's pension fund. Obviously that happens today, but please don't be misled by the commentators who prefer "professionalism to be demonstrated by the charging of fees". Commission is not a dirty word but is a way of providing advisers sufficient remuneration to do their job and give widows/widowers/children income on the death/illness/incapacity of a wage earner or a much needed pension.
Corporate clients can better afford fixed fees. This is not the case for many individuals who can afford regular premiums but could not afford fees. Fees would have to be greater than they really need be because clients do not flock to seek advice, rather they have to be sought out. This prospecting process takes time and sufficient income needs to be generated via the indemnity commission structure to allow for the clients that do not buy.
It is a sad fact of life that we pay more for fresh food because there is some wastage on products that are not sold but does that mean that the supermarkets should not sell fresh products? It is no different with insurance sales, some people approached do not avail themselves with the advice given but it does not detract from the validity of the advice and the need for financial products for the clients that appreciate the need for protection etc. The indemnity regime allows for this situation.
I have for some years dealt exclusively with school teachers and believe me they would not agree to paying a fee for work undertaken if they did not see a perceived shortfall, they will, however, agree to a commission being paid if in the event the "Needs Analysis" shows a shortfall in their current arrangements.
If the FSA takes away the income stream (indemnity commission) from advisers this will undermine the advice process that by far represents the majority of policies placed with individual policy holders. Multi-ties will confuse the public even further. If the client opts for multi-tied, how many advisers will the client have to see to make sure that he is not paying too much for the given policy from the companies that the individual is tied to.
Imposing restrictions on the commission amounts paid by insurance companies so that a level playing field is obtained for the clients would be a better way of dealing with the problems of the industry, as would legislation against providers who provide dubious types of policies. "With Profits" could be made more transparent, or cat-marked, and strengthen up the IFA's responsibility to demonstrate that the market place has been researched thoroughly and that the most competitive price or appropriateness of policy is adhered to. Don't forget, 99% of the time a more competitive premium means less commission. If the IFA does his/her job correctly the "cry of too much commission" would be self-regulating.
My suggestions for cleaning up the existing regime can easily be implemented within the confines of the regulation process that is currently in force. Let's not get rid of the baby or let the newbrush (FSA) sweep clean something that on further grass roots inspection (not an isolated survey of with-profits) is not too flawed.
Neither the buying public, the advisers, or insurance companies will not thank the director of the FSA for dismantling a system that can be tweaked and cleaned up so as to be as near to perfection as possible. The alternative, more than likely, will be a confusing multi-tier system that will ultimately destroy or confuse real independence and cost the investor or policyholder dearly.
I believe people will still want independent financial advice. If the supply of IFAs is restricted because of the new rules, the demand could well mean increased fees to the clients and that will set the whole issue back to square one.
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