Adviser

            Community

The Independent Resource for the Financial Adviser Community.

Site Map  Home

Effects of RDR on Insurance Sales

(and why they aren’t in the publics interests)

OTHER TOPICS

If you have anything you want to share, maybe it’s an issue which makes your blood boil, or it could be something which concerns you, but hasn’t seem to be picked up on by others in financial services; let us know.

If you think you have found a new niche market or product which you are willing to share with your compatriots, or maybe you have an amusing story (everyone needs a lift sometimes).  Drop us a line to :-

suggestions@which-network.co.uk

What is “The Financial Adviser Community”....A free resource basically you could define in three words “strength in numbers”.  This is help for you from people like you.......read more

Useful Contact Details....Contact details of Banks, Insurance Companies, the FSA, and others.....go to this page

Guerrilla Marketing....for financial advisers, This is the first in a series covering all aspects of low or no cost marketing, introducing the concept.....read more

Managing Change In Financial Services....Get your head into gear.  Attitudes for survival in the current financial crisis, and why apathy could be your biggest problem. Don’t just sit there!......read it now

Have Your Say ?

Which Network Adviser Community

A free resource for all Financial Advisers and Mortgage Brokers

To receive our free newsletter and access past articles and resources, just complete and submit the form below.

It’s interesting - to see that opposition politicians are now starting to line up against the measures which may be introduced as a result of the FSA’s Retail Distribution Review.  Interesting but not particularly surprising I would say given the reviews massive bias towards the banks and insurers.  As far as I can see, the end result of the proposed changes will be less independent information and less choice for the public along with greater volumes of direct sales accompanied by bigger profits for institutions from the increase in vertical marketing which would doubtless follow the implementation.

Remuneration of advisers - It has been recommended that advisers will be required to set their own charges for advice rather than being paid commission for selling insurance products, removing product provider influence from adviser remuneration.     You can see why this would seem desirable to someone not at the coal face of financial advice, but in reality the principal effect of this will be to drive the public away from independent advisers and straight into the arms or whichever bank, building society or insurance company which has the most effective marketing campaign.

How much would an broker have to charge?  In the current financial climate many brokers are struggling to keep their business viable, so it’s reasonable to assume that in many cases they would have to charge on a level with current commissions received on insurance policies in order to stay in business.  Taking an average term and CIC policy of £40 per month, this could be around £800, depending upon the provider, so are we really saying the average man in the street can be expected to pay an £800 broker fee, or a £500 broker fee, or even a £200 broker fee when he goes looking for some insurance to protect his family.

I don’t think so, particularly given the historical culture of the UK where this type of advice has mostly been free.  It seems more likely that the he will go to a price comparison website who have an agreement with an insurer to sell their vehicle insurance, or investment products for which a fee will be payable, or alternately just contact an insurer directly in response to an advertisement.  It’s been said that the insurers and banks are behind these changes, well I just be they are given that in the above case, it will give them £800 to share between their shareholders and marketing budget.

The Oxera report - states that “In terms of product quality, providers may have incentives in the long term to raise the quality of products for consumers or to improve their back-office support systems to advisers, which may indirectly benefit consumers”.  I would suggest that there is actually very little incentive for insurers to take this course of action.  

In fact I would argue that at the present time, there is more incentive for insurers to “raise the quality of products” as broker’s advice is based on matching their clients’ needs to policy features.  Once this process changes and it becomes unlikely that this comparison exercise will take place, would it not be more profitable for an insurer to spend any additional money generated by the scrapping of commission fees on advertising to increase their direct sales.

Sadly although no doubt the initiative has the best motives the end result of the exercise could easily be detrimental to the public with no “free” advice now available to them forcing them to make financially critical decisions on what they have gleaned from a few printed advertisements and television commercials.  Even worse however from a Labour governments point of view is that it is the poorer segments of society who do not have an ongoing relationship with an adviser which will come off worse.

An FSA study in 2002 - which has not been challenged since, they concluded that adviser commission driven bias was mainly on products such as ISA’s and investment bonds, was not widely spread and only seemed to happen on products which paid their commission as a lump sum.  As further research has reached similar conclusions, would it not make more sense if the FSA still feels a strengthening of regulations is required, simply to rule that all insurance commission must be paid on non indemnity terms?  This would concentrate advisers on long term customer relationships rather than a short term gain, at the same time removing the necessity for them to charge clients fees encouraging lower paid clients to seek good advice when they need insurance as it would keep the status quo with product providers paying commissions.  Since the products would still be subject to open scrutiny and expert comparison this would continue to motivate them to develop their products, introducing new features and better cover to maintain their products competitiveness when compared to their rivals.

Click Here.....If you’re a Mortgage Broker looking for the right network for your business