Fee-based protection advice can work - IFA

Laura Miller

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.



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