An incoming ban on non-indemnity commissions for corporate will force some advisers to relook at their revenue models and will prompt a greater focus on sales of protection products, the sales and marketing director at Canada Life has said.
Speaking to FTAdviser, Paul Avis said advisers will face a hole in ongoing revenue when commissions are stopped from next year. Advisers are also facing the loss of much remaining trail commission on investment products when platform legacy rebates are halted next April.
He added corporate advisers will be fine until 2018 due to auto-enrolment schemes paying fees to advisers, but warned this would be “short-lived”.
The Financial Conduct Authority banned trail commission on products sold after the end of 2012 and commission on most remaining products will cease when most cash rebates from fund groups and other providers to platforms are fully ended.
Also from April next year, providers will cut the commissions paid to advisers on workplace pensions, coinciding with the introduction of a charge cap on workplace pensions.
Major insurers including Aviva, Aegon and Royal London all confirmed last year that they would continue to pay legacy commissions right up until the deadline next April. Scottish Widows came in for intense criticism when it broke ranks and ended legacy commission last November.
Due to losing both renewal and non-indemnity commissions, Mr Avis predicted more firms would be looking at group life and protection products which can pay commission.
Similar predictions were voiced ahead of the commission ban under RDR but there has not been the expected surge in protection business that would indicate a movement into the area from non-protection advisers.
Mr Avis said: “If you’ve lost income from these two things - what is your plan? Group life pays up to 30 per cent every year contract is in force.”
Mr Avis has already seen some advisers consider advisers other elements such as group risk, medical, high-net worth financial planning, setting up their own funds and working with investment houses to build up new revenue.
“Small advisers - 95 per cent of them - want to use auto-enrolment pension fees to bolster their income.
“The real opportunity coming from auto-enrolment is from 1 June there is 1.1m – 1.5m employers about to go through auto-enrolment.”
Mr Avis said that following this research, the company surveyed 250 advisers again online in May 2015.
“We found that two thirds of advisers when talking auto-enrolment would talk wider benefits, and 75 per cent of these were talking group life.”
Michael Spink, lead defined contribution consultant at Spence and Partners, predicted there to be some “red faces” when employers begin interrogating advisers on their commission switch to fees in the run up to April 2016.