ProtectionAug 20 2021

Advisers call on loaded premiums to be banned

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Advisers call on loaded premiums to be banned
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Loaded premiums are an additional percentage fee charged on the sum assured in a mortgage protection policy by the insurer each month. 

Independent advisers, networks, and firms can choose whether to use a panel of insurers which charges loaded premiums or not.

This percentage fee is distributed to a number of stakeholders, including the re-insurer, insurer, network, and the appointed representative firm or adviser - on top of their commission or fee.

Mortgage networks Openwork Partnership and Mortgage Advice Bureau both house brokerage firms which collect loaded premiums. Just Mortgages, a partner of Openwork, confirmed it is one such brokerage firm collecting it through its insurers.

Just Mortgages wouldn’t reveal the exact percentage, but said it was about “half” of what other big brokerages charge.

Similarly, MAB said it would not disclose the percentage charged, but that it’s “not significant” and just "a handful of pounds a month difference".

FTAdviser understands the fee can range anything from around 15 to 30 per cent of the standard premium a client pays. If a customer was paying a standard premium of £10 a month which was then loaded to become £13, over 20 years a customer is paying an extra £720.

John Phillips, national account director for Just, said “most brokerages” operate a loaded premium. But there are major mortgage networks, such as Primis, which do not.

Phillips said a loaded premium pays for a number of things “vital to the policy holder”. These include “intensive protection and mortgage training over three weeks” for brokers, as well as “ongoing, monthly, one-on-one training and supervision” to ensure they “know the protection policies inside out” and can “provide the very highest level of advice”.

But some advisers were not satisfied with this explanation. Tom Baigrie, outgoing chief executive and founder of protection provider LifeSearch, said: “It’s a way of earning more from providing protection advice. The only justification I’ve seen is policyholders ‘paying for a superior service’.

“I don’t get a feeling that there is a better service or that it improves customer outcomes - such as fewer lapses. That, for me, is shocking. I think they should be banned.”

Determining 'fair value'

In its submission to the Financial Conduct Authority on the new consumer duty, LifeSearch said loaded premiums were poor value for money. 

“Inflating a customer's premiums to make more money doesn't demonstrate fair value,” said Baigrie, who added that LifeSearch “gets lots of business from customers with loaded premiums who look online and see lower prices”.

An FCA spokesperson has since clarified its stance on fair value to FTAdviser: “[This] means a fair relationship between the price the customer pays and the quality of benefits and services they receive.

“Where advisers are involved in setting part of the price (for example, where they load commission on to the price quoted by an insurer) this must not result in the price no longer providing fair value. 

“Adding a higher commission that is not commensurate with the benefit the adviser provides would be likely to breach these rules.”

The financial watchdog said firms which fail to work to its rules “risk regulatory action”. 

'Client's haven't got a clue'

Broker network The Money Group’s recruitment and brand development director, Dave Corbett, a former Primis director, agreed with Baigrie. 

He said loaded premiums should be banned. “Clients haven’t got a clue they are paying for a loaded premium.”

He continued: “It’s pure greed lining advisers’ pockets. It’s advisers who ask for this option from the insurers. Our view is that the broker or procurement fee is enough. They don’t need an extra.”

In response to Just’s justification of its choice to operate a loaded premium, Corbett said: “Basically what they’re saying is that the ‘extra training’ their brokers are put through to be more professional is paid for by their end consumer in higher premiums.”

He does point out, however, that many brokers might not even realise they are benefitting from a loaded premium, as it is not a price the adviser sets - rather it comes down to their network, or firm, and the insurers.

Roger Edwards, marketing director at Protection Review and a former managing director at Royal London, likened a loaded premium to "buying a concert ticket and then paying a £6 admin fee on top".

He continued: "If I was a client, I’d want them to tell me what this extra premium is for. Am I getting extra cover? An added service? Access to a GP service? It does need to be justified.”

Edwards reckons consumers do have a choice, “as long as they understand they have a choice”. He concluded: “But if they aren’t aware of the extra, then that doesn’t feel as if it’s being disclosed properly.”

'Academies aren't enough'

Ben Thompson, deputy chief executive of the Mortgage Advice Bureau, agreed with Just that the loaded premium it operates ensures the quality of advice for a consumer. 

"A smaller premium results in networks or brokerage firms offering thinner levels of training to advisers," he explained. "It's really important the policy is sold and bought properly. If you don’t take insurance out properly, you’ll be landed with hundreds of thousands of debt."

The implication of a new price set - ie one without loaded premiums - would see the pairing back of risk and compliance for customers, the deputy chief executive explained. "We understand where fair value comes from and it’s a good challenge of the regulator."

Thompson highlighted that many of MAB's advisers are new out of academies and do need to be trained, suggesting the training from these academies "isn't enough" to ensure effective advice.

"In the 1980s and 90s, big insurers used to run their own training facilities," said Thompson, "They fronted the cost of training people up. Now, it's incumbent on networks and national brokers to find the right investment to put behind training."

Compounded by strengthening regulations in the space, Thompson said this is a "genuine cost we now have to bear".

He cited L&G in Surrey and Allied Dunbar in Swindon as two examples of insurer training facilities which have been shuttered.

When it comes to the lack of transparency around the loaded premium amount networks allow insurers to charge, Thompson said it's hard to accurately disclose when a network houses different kinds of advisers.

"We have some 1,700 advisers, 180 firms, largely employed. Then there's Just's advisers, who are largely self-employed and individual advisers. It's hard to give a definitive percentage when you have different employment statuses."

FTAdviser approached Openwork for comment but the network said it “was not available for comment”. TMA Club and L&G Mortgage Club were also approached, both of which said they were “unable to comment”.

ruby.hinchliffe@ft.com