D
Dan Murray
Guest
Steven,
Firstly, thank you for taking the trouble to engage on this one - my criticism below is not, in any way, intended to be personally directed at you.
Quick initial question, is the re-imbursement of commission to clients allowed under the Consumer Protection Code?
My view is that it suits advisers to keep the status quo of commission payments. We have agreed that one commission option for PHI policies is 30% of the premium each and every year. To put this another way, the policyholder is paying 40% more in premiums that the equivalent non-commission contract should be. Let's take an example as to how a more transparent process might look:
1st year: Client would be asked for a premium of €2,100 and the advisor seeks a separate establishment fee of €900
2nd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x
3rd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x
and so on it goes.......
The point is that under the current commission based approach, the client is paying fees for an ongoing service in a manner that is not transparent and/or may be paying for "service" that he is not really receiving. In any event, is there really much work involved 3 or 4 years into such a policy's life?
In addition, commission payments give rise to possible conflicts. Say the client after year 3 says: I'm thinking of stopping my policy because of some financial constraint. The advisor is conflicted in that such an action by the client would reduce the advisor's income and consequently gives rise to a potential conflict of interest.
The bit about "it being built into the premiums" (together with the associated remark that non-commission contracts are not that much cheaper) is disingenuous as, if the broker network was sufficiently motivated, it would demand appropriate net of commission risk products as has been done for pension/investment products - i.e. where the non-commission premium reflects fully the removal of commission payments. (Earlier, I spoke to a friend who advises me that this is already established practice within the group risk market in Ireland). This would lead to significantly improved transparency in the client/advisor relationship.
Firstly, thank you for taking the trouble to engage on this one - my criticism below is not, in any way, intended to be personally directed at you.
Quick initial question, is the re-imbursement of commission to clients allowed under the Consumer Protection Code?
The fee structure to risk benefits is completely different to that of pensions and investments. It is built into the price..........The client knows the price of the product already and the commission the advisor is being paid will not alter that.
My view is that it suits advisers to keep the status quo of commission payments. We have agreed that one commission option for PHI policies is 30% of the premium each and every year. To put this another way, the policyholder is paying 40% more in premiums that the equivalent non-commission contract should be. Let's take an example as to how a more transparent process might look:
1st year: Client would be asked for a premium of €2,100 and the advisor seeks a separate establishment fee of €900
2nd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x
3rd year: Client would be asked for a premium of €2,100 and the advisor seeks a separate ongoing service fee of €x
and so on it goes.......
The point is that under the current commission based approach, the client is paying fees for an ongoing service in a manner that is not transparent and/or may be paying for "service" that he is not really receiving. In any event, is there really much work involved 3 or 4 years into such a policy's life?
In addition, commission payments give rise to possible conflicts. Say the client after year 3 says: I'm thinking of stopping my policy because of some financial constraint. The advisor is conflicted in that such an action by the client would reduce the advisor's income and consequently gives rise to a potential conflict of interest.
The bit about "it being built into the premiums" (together with the associated remark that non-commission contracts are not that much cheaper) is disingenuous as, if the broker network was sufficiently motivated, it would demand appropriate net of commission risk products as has been done for pension/investment products - i.e. where the non-commission premium reflects fully the removal of commission payments. (Earlier, I spoke to a friend who advises me that this is already established practice within the group risk market in Ireland). This would lead to significantly improved transparency in the client/advisor relationship.
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