Life insurance ifa fee

info_needed

Hello

The IFA who arranged my Mum's mortgage when she bought her new house two years ago came round recently to review her life insurance as the amount needed to pay out is not as high now that some of the capital has been paid off. I read the key facts document that he gave to her and it said that he receives a fee of £1200 for arranging the new policy. Is this right? It seems rather excessive! THe policy is about £40 per month.

kingstreet

£40 a month? £1,200? :eek:

I'd expect less than half that if it was my case.

dunstonh

Is this right? It seems rather excessive!

He has to be paid for doing the job. Also, it doesnt sound like fee basis. It sounds like commission basis. If it was fee, then your mum would be writing out the cheque for £1200. It is more likely the provider is paying £1200 to the adviser.

Remember that the £1200 is gross. Not net. Out of that come all the expenses for running the business. If you factor in compliance, staff, office, administration, software etc then he probably sees around half of that. Then by the time tax and NI comes off, you are closer to a quarter of the original figure.

£40 a month? £1,200?

I'd expect less than half that if it was my case.

You need to change your network or getting your negotiating skills up if you are directly authorised. The figure mentioned is about spot on what I would expect to see.

ACG

£1200 is still quite high for a £40 a month policy even if it is gross - compared to what i would receive gross. Id be expecting closer to £800-1000 depending on the insurer - although i wouldnt receive that amount.

rs65

info_needed wrote: »

The IFA who arranged my Mum's mortgage when she bought her new house two years ago came round recently to review her life insurance as the amount needed to pay out is not as high now that some of the capital has been paid off.

What figures are you talking about - original loan vs current?

How much cheaper is the premium?

thelawnet

dunstonh wrote: »

Remember that the £1200 is gross. Not net. Out of that come all the expenses for running the business. If you factor in compliance, staff, office, administration, software etc then he probably sees around half of that. Then by the time tax and NI comes off, you are closer to a quarter of the original figure.

Most of those costs are fixed.

If you are an IFA billing £100k, and you add £1200 to that, there's no fees to deduct at all. Taxes yes, but exactly how much they will be depends on your own tax arrangements.

And let's not pretend that these payments aren't being paid for by the consumer, of course they are, you might not get a bill, but Santa Claus ain't gonna pay all these commissions is he?

dunstonh

And let's not pretend that these payments aren't being paid for by the consumer, of course they are, you might not get a bill, but Santa Claus ain't gonna pay all these commissions is he?

No-one on the thread is. However, I was just trying to make sure it was not a fee but a commission.

If you are an IFA billing £100k, and you add £1200 to that, there's no fees to deduct at all. Taxes yes, but exactly how much they will be depends on your own tax arrangements.

That doesnt matter. In that example, you have to get to £100k to be in that position.

Rymo_2

I think that level of fee for arranging / amending a policy seems excessive.

I do understand that there is work involved, but £1200 worth?

Thats two weeks wages plus for someone on average earnings!

As for costs all of us that run a business have overheads, a lot with CPD as a requirement, cost of regulation etc, IFAs are not a special case.

I thought one of the ideas behind the RDR was that the costs reflected the work involved, perhaps the sooner it's here the better.

The commission comes eventually only from one place, the customer, they are paying it. Commission is in my opinion rotten and should be totally banned from the sale of financial products (just my opinion).

If I was the original poster I would definately be looking around for other quotes.

IFAs need to earn a living, a good one hopefully, but they also need to offer a fair price for the actual work involved.

dunstonh

I think that level of fee for arranging / amending a policy seems excessive.

I do understand that there is work involved, but £1200 worth?

Thats two weeks wages plus for someone on average earnings!

You have made the common mistake of assuming that £1200 goes in the pocket of the adviser. In reality, it is probably closer to £400 (if employee adviser rising to around £700 if sole trader) The adviser probably does 1-3 a week with probably a much lower average.

As for costs all of us that run a business have overheads, a lot with CPD as a requirement, cost of regulation etc, IFAs are not a special case.

IFAs are not a special case. However, you now seem to understand that there are other fees yet above you seemed to imply £1200 was the amount earned as a wage. Different businesses will have different cost levels. Something like 50% is not an unrealistic level (close to what I am seeing).

I thought one of the ideas behind the RDR was that the costs reflected the work involved, perhaps the sooner it's here the better.

The RDR has no such requirement. Indeed, it is likely to see costs increase on small cases, remain largely the same on medium cases but be cheaper on larger ones. Small cases were typically cross subsidised by the larger ones and that wont be there in future.

ACG

As Dunston says we woul never see a large chunk of that £1200.

If you cancel the policy within 2-4 years we lose part of the commission.
We also have to stand by our recommendation for potentially the rest of our working life. Is £1200 a lot to do that?

A Builder of a brand new house only has to get a guarantee for 10 years - were selling insurance and have to stand by it for 10, 20 or 30+ years.

Thats partly why non advised sales can take lower commission, they take a step away from any future issues that may arise - they can never be at fault.

Rymo_2

I was in no way intending to have a dig at IFAs, no reason to. But I agree, actually seeing 50% of original fee in your pocket is about average I suspect, depending on your business overheads etc.

So £600 for carring out this transaction, seems very, very expensive to me. How much work is involved? 2 - 3 hours if not less?

It's a shame that fees are not required to reflect actual work and effort involved by the RDR as you IFAs might well see a big increase in business if it did.

People I know percieve IFAs to be expensive and most don't use one.

With examples like the original post making it to forums like this I think that this perception of IFAs, as the very expensive option, will stay with us.