Broker fees

Moglet

How does it work with insurance products sold at the same time? Does the fact commission is paid mean the policy is usually more expensive?

dunstonh

How does it work with insurance products sold at the same time?

you can go fee based or commission on those too if you want.

Does the fact commission is paid mean the policy is usually more expensive?

yes. Although often not enough to make fee option worthwhile. (tied agents and salesforces can often significantly load the premiums higher - e.g. IFA premium is one amount and tied agent using the same provider and details can be 20-30% higher).

smcqis

I said they may do a good job but why pay it if you didnt have to, if yous read my statement right i wasnt implying a fee one was no good. Apologies if i didnt make it clear

Moglet

Can someone explain the consumer protection please? Is this liability for assisting in choosing the best mortgage product or how much or what types of insurance cover you might need?

dunstonh

smcqis wrote: »

I said they may do a good job but why pay it if you didnt have to, if yous read my statement right i wasnt implying a fee one was no good. Apologies if i didnt make it clear

What if the fee option is cheaper than the no fees option?

Can someone explain the consumer protection please? Is this liability for assisting in choosing the best mortgage product or how much or what types of insurance cover you might need?

liability for advice and setting up (the bits the broker is involved in)

kingstreet

Moglet wrote: »

Can someone explain the consumer protection please? Is this liability for assisting in choosing the best mortgage product or how much or what types of insurance cover you might need?

The difference can apply in both cases.

You approach a whole-market or independent broker. The broker establishes with you his service, how he operates and how he will be paid. You agree a deal for a fee, commission or a combination of the two. He agrees to source from the whole market and to provide you with advice and a recommendation.

The broker gets to know about you, your needs and future plans and analyses your circumstances to establish the best route for you. He sources the best product, normally based on a combination of product terms, rate, service from provider etc. If you've chosen the fee route, direct to provider products will be included.

He will then write a report explaining how your needs were established and other facts taken into account. He will confirm the product recommended meets your needs and how it does that.

In the event you feel at some point you may have been wrongly advised, the documentation produced during this process would be scrutinised and if appropriate, compensation might be payable.

Brokers must have professional indemnity cover to compensate complainants. The Financial Ombudsman Service would adjudicate any situation where you were unhappy with the outcome of a complaint to the broker. The Financial Services Compensation Scheme can compensate those who have suffered a loss where compensation from the broker is not available as the broker is no longer trading.

All this is funded by the brokers themselves and through the fees and commissions paid/earned on behalf of customers.

If you approach a provider directly, most give information only. You are given illustrations and are expected to choose the right product. You are not afforded protection against bad advice, as no advice is given.

I find it astonishing people make decisions involving hundreds and thousands of pounds and will scrimp on a couple of hundred in a sense that no fee payment somehow equates to value for money.

More in next post.

kingstreet

Let me give an example. This is related to life assurance and is an actual case and it involved a customer who is famous in the world of sport. It's about fifteen years ago and I won't be mentioning the customer's name, but it shows even the rich and famous can be bamboozled - and by a friend at that.

The client spoke to a friend who worked for the direct sales arm of a well-known life company. The friend sold the client a £500,000 unit-linked whole life policy for family protection.

We became involved with the client in his business dealings and discovered this plan during our information gathering meetings.

We discovered the policy had not been written in trust and was therefore adding to the client's estate an Inheritance Tax liability of £200,000.

We approached the insurer, explaining what had happened. We requested the policy be cancelled from inception and all premiums refunded, a new term assurance be written by us for an equal amount and without any medical underwriting and we be allowed to write a trust for the new plan.

The client agreed we should receive commission. He received a £7,500 repayment of premiums, his future premiums were halved, he had the security of knowing his benefits would be paid directly and quickly if he did die and £200,000 dropped off "his" potential Inheritance Tax bill.

Moglet

Thanks Kingstreet for the informative posts.

More daft questions...

What's the difference between a mortgage advisor, a mortgage broker, a financial advisor and if any of those work for a company....can they still be independant?

dunstonh

What's the difference between a mortgage advisor, a mortgage broker, a financial advisor and if any of those work for a company....can they still be independant?

Mortgage broker and mortgage adviser are almost the same thing. They are really interchangeable terms. Although a tied mortgage adviser or limited panel mortgage adviser could never refer to themselves as a mortgage broker. Whereas a whole of market mortgage adviser or independent mortgage adviser could call themselves a broker.

Financial advisers dont just do mortgages. Indeeed, many financial advisers nowadays (mostly independents) dont do mortgages as they leave them to the mortgage advisers. Most independent financial advisers will employ a mortgage adviser or have access to one instead.

Independent isn't about who you work for. Technically, all advisers have to belong to a company. So, a self employed adviser will be authorised twice under the FSA. once for advice and once for their company. That said, you shoudnt expect real independence from advisers working for large regional/national firms. HSBC, for example, have a tied and an independent advice arm. The independent advice arm recommends far too many HSBC products. Yet HSBC products are generally very poor. Lloyds independent arm, Lloyds Private Banking, usually sees portfolios that have far too much Scottish Widows in them. So, clearly, they are not really being independent. The main reason is they have sales managers and sales targets and salesforces are rarely the best place to get advice from because you dont want someone who is on the threat of being sacked if he doesnt sell enough own brand products giving you advice. Hence using small local independents is seen as being so much better.

Moglet

Thanks Dunstonh, most informative. I have a much better understanding now of advisors and brokers and what their purpose should be.