Protection  

Commission is no barrier to protection take-up, advisers say

Commission is no barrier to protection take-up, advisers say
 Credit: Darius Krause from Pexels

Advisers have expressed doubt over the effectiveness of forgoing commission in a bid to encourage more consumers to take out protection.

Jiten Varsani, mortgage and protection adviser at London Money, said he did not see commission as a barrier to the take-up of protection if the chosen premium was affordable.

Varsani said: “Amongst many objections a client may have, I have never had a client decline protection advice due to commission being paid. Clients understand that we work for a living and thus get paid accordingly.

“Providing we are upfront about how we are remunerated and that the higher the premium, the higher commission, clients understand and are happy with this.”

Schroders Personal Wealth said this week it would not be taking commission on any protection advice from clients when discussing wider financial planning to help close the protection gap.

Research from the Association of Mortgage Intermediaries last year found 52 per cent of consumers thought a financial adviser’s main motivation for suggesting protection insurance was to increase their commission by making a sale.

But Matthew Chapman, commercial director at Plus Financial Group, also did not think forgoing commission was an effective solution to encouraging more people to take out protection.

Chapman said: “Ultimately, this will have very limited impact on the premium the client actually pays and may dissuade even more advisers from recommending protection if the financial reward is removed.

“For me, the real issue is getting more advisers to talk about, and recommend, protection in the first instance.

“I believe it has more to do with adviser confidence and competence when discussing protection. The best way to close the protection gap is to open the door to more protection conversations.”

According to Alan Lakey, director at Highclere Financial Services, an alternative of charging a fee for protection advice had “tried and failed to gain traction”.

Lakey said: “It may have a place for extremely large premiums but it simply doesn’t work for the typical client.”

Citing an example of a 30 year old male taking out a life or critical illness decreasing term plan of £125,000 over 25 years, Lakey quoted a saving of around £4.35 per month between a premium with and without commission from one leading insurer.

Lakey added: “You could argue that he has actually saved £1,308 over the plan term, however few plans last till the end of the term for various reasons. I’m told the average lifespan is around seven years, which reduces the saving to £366.”

He continued: “We offer a fee option at the moment and, guess what, not a single client has asked to proceed on this basis.

“As with a mortgage or other purchase, most consumers prefer the simplicity of the cost being built into the product.”

chloe.cheung@ft.com

What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know.