Insurance

magee737

Me and my partner have bought our 1st home together just recently, we were pretty niave in accepting our mortgage brokers advice on insurances. We are both fully covered on Life, contents, building, income and critical illness for £60 a month. Recenlty we decided against the latter 2, but our broker said a charge of £800 will be incurred if we do not not keep the insurances going for another 18months.

Can he do this?

dunstonh

we were pretty niave in accepting our mortgage brokers advice on insurances.

If the adviser was whole of market then there is nothing niave about it.

Recenlty we decided against the latter 2, but our broker said a charge of £800 will be incurred if we do not not keep the insurances going for another 18months.

The adviser cannot enforce that but some unscrupulous types often say that in an attempt to put you off.

The FSA have some rules which are called "Treating Customers Fairly" or as its more commonly known to us as "TCF". This sort of comment from the adviser breaches TCF.

(copy and pasted)
We don’t use a TOB or fee agreement to ‘hide’ contingent fees, or other onerous clauses, that aren’t mentioned in the fee section of our IDD and/or Menu (e.g. IDD says ‘no fee’, but TOB reserves the right to charge one retrospectively, if the adviser suffers commission claw-back).

So, unless you have actually signed a proper fee agreement that states that the transaction was being done on fee basis but commission was being used to offset the fee, the adviser doesnt have a leg to stand on and you can threaten a complaint under TCF rules.

You can ask the adviser for a copy of the fee agreement signed by you agreeing this fee. Without it, they are stuffed and you hold all the cards as now isnt the time to be getting complaints in breach of TCF as its the FSA's baby and they are looking to make examples of firms.

Shortie

Thanks Dunstonh, checked this thread after the other one today and this makes much more sense to me, thanks... The mortgage broker is going to see if he can get hold of a copy of the agreement to send me before I approach Head Office for a copy. I feel bad for him in this as he's a really nice guy, it's the company I'm now annoyed at

One question if that's okay.... if the fee was offset against the life insurance policy and this is stated in the agreement, it would also need to specify a lock in period? If not, does that also leave them in a bad position as it 'wasnt made clear'? Until I've seen the paper work I can't tell, but I'm trying to get my thoughts straightened out a bit first as my head's now not with my work for thinking about this (right in the middle of our Month End -fab). Argh

Is there a standard 'percentage per month' that the FSA set for them to recover their losses if I did sign to the effect of 38 months lock in? At the moment I have no idea what the fee is and I don't particularly want to take out another policy to stop the fee (as has been suggested) as I will then knowingly be locked into another 38 months which I'm not happy about, especially in light of this

Thanks very much for the explaination above

Shortie

magee737

I signed something but as my partners life insurance was not accepted they count finalise but she signed also, where will this leave us?

dunstonh

One question if that's okay.... if the fee was offset against the life insurance policy and this is stated in the agreement, it would also need to specify a lock in period? If not, does that also leave them in a bad position as it 'wasnt made clear'? Until I've seen the paper work I can't tell, but I'm trying to get my thoughts straightened out a bit first as my head's now not with my work for thinking about this (right in the middle of our Month End -fab). Argh

The fee agreement must cover off clawback arrangements and the period for it to be valid.

For a firm to do this, they must have it in their initial disclosure documents as well as the fee agreement. So, you should check the "key facts" intial documents as well as a fee agreement.

Is there a standard 'percentage per month' that the FSA set for them to recover their losses if I did sign to the effect of 38 months lock in? At the moment I have no idea what the fee is and I don't particularly want to take out another policy to stop the fee (as has been suggested) as I will then knowingly be locked into another 38 months which I'm not happy about, especially in light of this

The FSA are against clawbacks being lodged against clients (hence bringing it under TCF guidelines). So there are no rules on how it should be done apart from it being documented in a correct and fair manner. They dont mind investment business offsetting fees as that generally has no clawback and is effectively a fee as commission = charge. With life assurance though, the choice of the adviser to take indemnity commission should have no impact on you as a consumer. They could have taken non-indemnity or level commission which suffers no clawback. If was their choice, not yours.

Basically, if no agreement exists and its not in the Initial disclosure documents, they wont have a case if you take it to complaint.

I signed something but as my partners life insurance was not accepted they count finalise but she signed also, where will this leave us?

Was it a fee agreement though. You may sign a number of things but it is unusual for an adviser to present a fee agreement in front of you unless you are paying proper fees. Ask for the agreement and ask where on the initial disclosure documents does it state that you will have to suffer their clawback. If they cannot produce that information then they cannot enforce what they are requesting.

edit:

also, the fee must be fixed at the outset. It cannot be an unspeficied amount. So, if it was £800, then any commission over that £800 should have been rebated to you. It may be an idea to find out what the intial commission was.

And, if the fee was £800 and the fee agreement does exist, then the clawback will only be pro-rata. So, you cannot be billed for the full £800 as the clawback wouldnt be the full amount.

magee737

Great help mate cheers

Shortie

Yes, thanks again dunstonh

magee737

Just been on the phone to my morgage broker, he said the money owed is down to the amount of work that goes off behind the scenes, all the underwriters, Laughable.

Said it could cost me upto £1200 evn though if i pay out my insurance for the rest of its tme it only equals £728

dunstonh

Thats not good enough. Sure it costs money to do these things but thats the risk of doing a transaction on commission basis and not fees.

They cannot charge you unless there is a fee agreement. It doesnt matter what excuse they come up with. It has to be documented.

Here is a guide from the FSA. It backs up what I have said.

http://www.fsa.gov.uk/pubs/public/financial_advice.pdf

initial commission is a lump sum the adviser gets at the time you buy the product. If you stop paying into the product before a set period of time, the adviser may have to repay a portion of the initial commission (sometimes called ‘commission clawback’) back to the product provider. In some instances, the adviser may come to you asking for payment to make up his loss from any ‘commission clawback’. However, unless you have agreed to
terms under which the adviser can ask you for further payment, you are under no obligation to pay;