"I am a generalist IFA. How can I justify to my clients that protection products are still based on commission payments? A few of them have heard that most advisers now charge fees for financial advice and find it hard to get their head round the difference with protection."
Phil Jeynes, PruProtect
With protection, the amount of time it takes an adviser to write a protection case and take them through what might be a complicated underwriting case is disproportionate to the amount of money that they earn.
If you've got a customer whose premium is quite high because they have had a difficult medical past or family history of a certain disease, that person could be on quite a low income. If you charged it, say, by the hour as you did for other pieces of advice, you might be charging someone unfairly as they do not have a lot of money.
With investments, someone who has £500,000 to invest, are quite a wealthy person and the fee taken is pretty fair.
If you are a young family who needs life, critical illness or income protection cover and have a complicated medical past, it is not fair to say: "I am going to charge you more because you are going to take me longer than the 18-year-old who has lots of money to invest and their medical history will go straight through."
Consumers haven't got the faintest idea about this. For 99% of people, I do not think it is on their radar at all. They want a fair premium, and they want a product that is going to pay out when and what they think it is going to pay out.
The way the adviser gets remunerated for this service is so far down the list, it's untrue.
Dean Mason, Masons Financial Planning
The majority of clients I deal with I charge a fee for mortgages on paper, but the reality is a lot of them I don't charge fees to.
I don't have many high-net worth clients. The majority of them are ordinary people borrowing up to around £250,000 and they're not used to paying IFAs to invest, say, £100,000.
They accept that's how the system works. I would normally say to clients there is a choice of how a provider might choose to pay us - a lump sum upfront, which is reclaimable over four years usually or they will pay it in increments over four years. That assures we are giving the best advice as you can cancel in that four-year period and we would lose the money we earn in setting up the policy.
If any of them ask why I don't charge a fee, which I've never had with protection, I would reply: "I would earn £500 - are you happy to pay for the advice? I don't deal with investment and pensions." So for me, most of my clients don't get charged a fee anyway.
You do not say to a client: "Do you know what the Retail Distribution Review is?" unless they are in the industry. You would say: "Are you aware there have been lots of regulatory changes? And you may be aware, when I'm referring to the pension and investment partners that I use, he will charge you a fee now, he is no longer allowed to take commission from these products."
Mark Dennison, Lightblue
It's a non-issue. I've never come across anybody it has been an issue for. As part of our independence, we give everyone a choice for paying by commission for protection products or by paying a fee.
Nobody has chosen to pay for anything other than commission. We have never had anyone ask: "Why do I pay a fee for this or pay another product by commission?" No one has ever queried it.
People perceive commission as costing less. If you have done a commission fee protection product, it makes very little difference to the product. I don't see there is an issue in the industry with respect to protection products.
We are a firm of IFAs who do have a protection arm. On the IFA side, we are mainly doing investment and pensions, clients are all aware of the RDR.
On the protection side, depending on the demography of the people you're talking to, a lesser number have heard of it.
It simply depends on peoples' exposure to investments, their income, where they live - all these will be factors. I've always said: "As far as protection goes,
it has to be sold rather than bought". People don't suddenly wake up one morning and say they need to take out thousands of pounds' worth of life cover.
They need someone to take them through the process and make it a priority today.
People have always been happier paying for protection products in the way that has always been traditional, via commission. If the RDR did cover protection, then the way people buy protection would change.
