Life Insurance commission 'clawback'!

steveb_2

I have a life policy which I want to cancel. It has only been running about 1 year, and the insurance company (Bright Grey) says I can simply cease paying the premiums. My IFA though has said that he will 'clawback' the commission which will have to be repaid. This amounts to £2800!!! I don't know how he proposes to recover this from me.

Does anyone know if this is legit, and what I can do?
Thanks

ACG

SOME advisors do take their clients to court if they cancel a policy which results in a clawback. He will most likely be taking you to court for "Lost earnings".

£2800 is a LOT of money considering your 1 year into the policy and Bright Grey only have a 2 year clawback period. At a guess the premiums must be in the region of about £100-150 per month.

A lot will depend on what their terms of business stated when you took out the policy.

Quentin

steveb wrote: »

Does anyone know if this is legit, and what I can do?

Check the wording of any agreement you signed with the IFA.

steveb_2

Yes the premiums are £150. IFA said 4 years term, so I'll have to check. I *did* speak to Bright Grey direct before the IFA & they said there were no penalties, so I'll have to ask them on Mon. Interestingly, the IFA has changed the name of his company, so maybe the commission wouldn't be recoverable as its a different business? Mind you, the policy is in the name of my company, so he'd have to sue that.

dunstonh

I don't know how he proposes to recover this from me.

First by billing you, then threatening you with legal action and finally by taking you to court is the usual process.

Does anyone know if this is legit, and what I can do?

If the transaction was done on fee basis and you used the commission to offset against the fee then this is legal and actually often the best way to do it.

If there is no fee agreement and it was a commission transaction and nothing exists saying you agreed to cover clawbacks then he can whistle for it.

If commission offset against a fee was used then only commission to the value of the fee can taken. You can only be chased for any difference. Not the full amount of the commission.

I *did* speak to Bright Grey direct before the IFA & they said there were no penalties, so I'll have to ask them on Mon.

Bright Grey would not know your liabilities with the adviser. They have no penalty or cost but they wouldnt know what the IFA will charge you. They may well tell you the amount of the commission and what the clawback would be if you asked them.

Interestingly, the IFA has changed the name of his company, so maybe the commission wouldn't be recoverable as its a different business?

It would be.

steveb_2

Thanks for that. I'll have to check on the termination period with Bright Grey, and presumably they can advise if they will try to recover the commission also. The IFA terms were that no fee was applicable as they get paid commission. They only stated the *possibility* of clawback, and I suppose I was naive in not asking their specifc policy or amount of commission paid :-(
Never again!

dunstonh

I'll have to check on the termination period with Bright Grey, and presumably they can advise if they will try to recover the commission also.

24 months is standard with BG. They will recover any initial commission on a relatively pro rata basis in that 24 month period.

The IFA terms were that no fee was payable as they get paid commission.

Without a fee agreement then they have no hope in hell. Remember that they have to show that you owe the money. The fee agreement is the document that would show that.

steveb_2

I appreciate your time on this. There is no fee agreement. The insurance was sold as commission only, so I had no idea how much this was (I know things are more open now). There was just this imprecise reference to 'possible clawback', so I didn't really know what my liabilities were.
I also checked, and the IFA was employed by the original BG agent at the time, which I don't think is trading (Ltd Co.). The IFA has now his own company, so would he have to refund?

ACG

Yes.

Basically when they open an account (or Agency) with the insurance companies they usually have to sign a personal guarentee. This basically means if the business comes off the books they initially try to claim it back off the company who gave the advice and then if not they can take if off the advisor.

Whether he changes company, is no longer in business or whatever he is liable for that money (unless he sells the business and liabilities with it).

I think Bright Grey do have 4 year clawback periods but in the main they are 2 years.

Have a look at your original quote if you still have it. This will confirm how much commission was paid and also over how many months and it will either say 24 or 48 months.

Someone correct me here....
Does the advisor need a fee agreement? If it is in his Terms of Business and the policy went ahead is he not deemed to have accepted them? As the company pays the premiums is this not B2B rather than B2C therefore the client has less rights than if he were paying them as a customer?

I know with BG's clawback period the clawback amount doesnt go down in a diagonal line (ie imagine a graph with term along the bottom and clawback liability at the side) the advisor will basically have to pay the bulk of it back for the first 18 months or so and then it starts to drop significantly its like a curved line in BG's favour for the majority of the clawback period.

dunstonh

Does the advisor need a fee agreement?

The court will ask for evidence that the client agreed the fee. The fee agreement is the cleanest way of doing this.

If it is in his Terms of Business and the policy went ahead is he not deemed to have accepted them?

Depends on how obvious the clawback is described and the quality of the document and the odds of it being given out. The rule of thumb is that if it is not signed then it has little value.

The commission clawback without fee agreed is frowned on by decent advisers. Fee agreed and using commission to offset it is very fair as a fee is agreed at a fixed level irrespective of provider. Any commission above the agreed fee is rebated to enhance product pricing. Whereas commission without fee agreement is uncapped and could be much much higher than the fee option had that been taken.

If the terms of business do mention fees then it could be possible for the client to argue that they are only responsible for the fee amount and that the commission taken was above the fee level and therefore therefore the adviser committed fee fraud by saying it would cost £x but the commission to offset the fee was much higher.

If you are pursued for a fee without a fee agreement then complain (and say you will go to the FOS if they continue to pursue it). If you go to the FOS then the adviser is charged £500. Even if the FOS reject the complaint. Most give up at that stage to avoid the £500 and avoid a complaint having to be declared (which can increase PI insurance and wave red flags to their compliance or the FSA).

magpiecottage

A number of my clients do sell life policies on a commission only basis and provide for recovery of clawback in their client agreements.

However, to make them work the agreements must be VERY carefully written so that the customer can understand how much it will be. It took me a long time to draft a format which will be adequate without the adviser inadvertantly giving incorrect information.

This is because I do not think some vague reference to clawback is anything like adequate.

There are a couple of further issues.

The first relates to the business. If he has simply changed the name of his business then that will not affect his ability to claim. If, on the other hand, it is a different legal entity and he has simply changed the servicing agency it will be more difficult. This is because the insurer will not permit a wholesale transfer of agencies without the liability for clawback going with it. However, the new firm may not be able to enforce contracts entered into by the old one. I have seen this happen before.

The second relates to the status of your business.

If it is a limited company or limited liability partnership, then the claim is against the business, not you (unless you gave a personal guarantee). Otherwise, legally, you are your business and the claim is against you personally.

If a claim comes in and you want to complain that clawback was not adequately explained do it quickly.

If you do not get a resolution within 8 weeks, or you get a final response before then that is not satisfactory, IMMEDIATELY go to FOS.

The reason for this is that you want FOS to accept it before the IFA goes to court. Otherwise it cannot accept it. Once it has, if the IFA goes to court you will still receive notification from the court but will be able to provide documentary evidence that FOS has accepted it and the IFA is therefore required, under the Financial Services and Markets Act to allow FOS to address the dispute.