Your financial adviser is much busied currently with a concept from the regulator having the label Retail Distribution Review http://www.thepfs.org/pages/memberservices/RDR.aspx where the aim is to raise the bar on qualifications and give a firm kick in the direction of fees for payment for advice, and move away from commission. Effective date for this sea change is 2012 but until then commissions are OK and will probably remain so for protection business. A colleague who joined wanting to work on a pure fee-based model, had to accept that for protection business commission was the only viable option. A professional introducer also reminded me sometime ago, “people just hate getting their cheque books out!”
Another initiative from the regulator is Treating Customers Fairly, but that can wait for another blog http://www.fsa.gov.uk/pages/doing/regulated/tcf/
Trail commission rules are much stricter now and if a client is not getting any on-going advice, you cannot keep the trail commission which does have two advantages – it is simple and fair. Average commission for pension or investment business is 0.5% p.a. (50 basis points) and varies with performance. Anyone can understand this calculation and if the fund value goes up, advisers earn more and vice versa which is pretty fair. This is also the adviser’s pension as if he sells his practice or client bank, the amount of assets under management &/or the trail commission is a major factor. Clarity is a guiding theme in the RDR as advisers call it.
For other professional practices, the figure obtained when an accountant/solicitor sells up or retires is related to annual fee income. Accountants for example, tend to have recurring income when people come back year after year for their audit, bookkeeping or tax returns. Solicitors’ income can be more sporadic as people tend not to buy a house, get divorced, make a will or die every year.
Surprising then at a local meeting of http://www.financialplanning.org.uk/ where structured products are the agenda http://www.georgeemsden.co.uk/2010/02/theres-gold-in-them-thar-hills/ and questions afterwards are interesting to say the least. Average commission for lump-sum investment business is around 3% with maybe 0.5% p.a. trail, but some providers offer up 8% initial commission and for niche funds typically overseas-registered property funds, this can be as high as 12% or in one case 16%! Such high commissions tend to be for high risk funds often for speculative overseas property developments. They will be unregulated i.e. not covered by the Financial Services Compensation Scheme about which I have written before http://www.georgeemsden.co.uk/2009/11/interesting-times-how-to-spend-14bn-in-a-weekend/ Going back to my opening point, one has to wonder occasionally if we do all breathe the same air. If claims are involved, other IFAs will of course pick up the tab – like any insurance scheme – but if commissions are eventually banned, don’t expect fees to be cheap.
Another cancer enquiry from Twitter http://twitter.com/cancerIFA where I am known as cancerIFA is from a young persons’ charity where the question is, “Can I get life insurance, if I have been clear of cancer for a while?” Answer here, “It depends” but a little light here. Having had throat cancer myself in 2007 and now with 6 monthly post-treatment check-ups, I still have to say that one is never really clear of cancer – all one can do is perhaps be a bit more careful afterwards? Forgoing the pleasure of a cigar at my daughter’s wedding and the arrival of two cute grandsons was not a huge sacrifice.
Getting back to the original question, I arranged critical illness insurance for a client who had had cancer twenty years previously. Took time to do and eventually got the cover at standard rates but with a specific exclusion for cancer. In other words, the policy would pay out for: heart-attack, stroke, multiple sclerosis, loss of limbs &c. and in his case, total permanent disability for his own occupation but not any cancer illness. If any of your existing policies have total permanent disability, you might wish to check what type of occupation is covered here and if you don’t understand the terminology, contact the guy who sold it to you.
Regarding the enquiry today, cover can be arranged by going to several insurers at the same time, only needing to fill in one form which an IFA can arrange. Only one medical is likely to be needed as insurers will share medical information. Worst thing is to do it yourself and go from one insurer after another, wasting your time and theirs. With any insurance proposal, telling porkies is not a good idea and for a claim which was not paid (my very first one) see http://www.georgeemsden.co.uk/2008/06/uberrimae-fidei-bo-diddley/