Remuneration: LifeSearch warns fees for protection policies can be used unscrupulously
By Lucy Quinton
Offering fees as a remuneration option when selling protection could potentially be discriminatory, according to protection-only IFA LifeSearch.
Kevin Carr, head of protection strategy at the firm, said commission should be the preferred remuneration option when advising on pure protection policies due to the complex underwriting involved. "We think introducing fees promotes possible grounds for discrimination," he said.
"Unlike many savings and investment products, the advice process for protection often involves a significant amount of underwriting, which can cost the adviser significant time and money," Carr added.
For example, "if the adviser was charging an hourly fee", for more complex cases, this is "simply unfair", Carr said. "Why should a client with health issues pay more than someone who is healthy? Even if a flat rate is charged for all clients, this would need to take the underwriting of non-standard cases into account, which also isn't fair," Carr explained.
In addition, if a policy turned out to be inappropriate or unsuitable and the client chose to terminate the contract, commission can be clawed back in the earlier years. However, with fees, this would not be possible and the adviser is duty-bound to ensure the initial recommendation was suitable.
When it comes to advising as part of an holistic approach, which includes savings and investments, then it is acceptable to introduce fees into the equation because it can be picked up from the other areas the IFA has advised on, Carr argued.
However, Robin Gordon-Walker, spokesman for the Financial Services Authority, said such an issue was not tantamount to discrimination because "it's voluntary and consumers can choose either commission or fees as a means of remuneration. It's too strong to call it discriminatory".
Agreeing with Carr however, Peter Chadborn, principal of CBK, who undertakes holistic advice, said fees should not be introduced on pure protection sales as, "it would not work because generally customers are not prepared to pay". He added: "They don't appreciate the value of getting protection."
Richard Verdin, sales and marketing director of Direct Life & Pension Services, said: "Fees suit some people at the top end of the market. Commission, on the other hand, is an effective means of rewarding an adviser."
Jonathan French, spokesman for the Association of British Insurers, said: "There are positives in both commission and fee models. Both are effective for advisers and consumers and there is plenty of variety in the industry."
