Decreasing Term Assurance - IFA v Cavendish??

jimmy_81

Hi all,

In the process of buying a house at the moment & we've gone through a financial advisor for the mortgage - they've been brilliant, really on the ball & helpful.

Following the mortgage offer the advisor suggested we have a chat about life assurance. I must admit I'd not really thought about this; my OH and I both have cover through work BUT this only covers us whilst employed so fair enough, maybe worth getting something independent in case either of us loses our jobs. Also there's some chance my OH may choose to go self-employed so we'd feel a lot more confident if already had protection in place.

Anyway... Had a meeting with the IFA yesterday, again really helpful and explained a lot about the different options. His recommendation was to go with a guaranteed premium policy with Legal & General, joint between my wife & I, and covering full repayment of the mortgage in the case of death or critical illness - fixed at approx £63 per month for the full 25 years.

This didn't seem too unreasonable - however.... After he'd left I did some research of my own including reading Martin's guide on the topic. I duly then went onto Cavendish Online and had an instant quote - sure enough it came back at only approx £47 per month for that very same L&G policy!

So now we're really confused! Morally it seems a bit harsh on the IFA to take his advice then turn around & shop elsewhere for the cover.

On the other hand... With my hard-nosed money saving hat on, paying £16 less each month seems like a no-brainer.

So... What would you do? Any experience or problems going through Cavendish?

Thanks very much for any tips! :T

dunstonh

sure enough it came back at only approx £47 per month for that very same L&G policy!

It would do as Cavenish is nil commission as there is no cost of advice or liability factored into the premium.

So... What would you do? Any experience or problems going through Cavendish?

cavendish is fine. You wont get FOS protection for advice. It really does come down to your morals.

jamesd

Tell the adviser about the alternative price. Invite them to match it, perhaps proposing a fee-based remuneration for them if they can only match it on that basis. No need to treat the adviser badly, you're used their advice and there seems to be plenty of price difference available to both pay them a fair price and save you money.

dunstonh

Tell the adviser about the alternative price. Invite them to match it, perhaps proposing a fee-based remuneration for them if they can only match it on that basis.

The adviser will only be able to match it if they go nil commission themselves (assuming it is an IFA and not an FA. An FA is unlikely to be able to match IFA pricing)

jimmy_81

Thanks for the replies folks, much appreciated! I actually wouldn't have any problem paying the IFA something for their advice - I have appreciated their help!

However... Having had a closer look at the paperwork they'd be getting a commission of approx £1500 if we signed up to the policy through them. Over the lifetime of the policy we'd pay approx £4800 more for taking this option! :eek:

Nice & helpful as the IFA has been, I'm not sure they've justified us paying nearly £5k more. Especially as they initiated the discussion - of course having the assurance is a sensible protection and probably the right choice for us, but once can't help but think that £1500 commission for them played a part in their encouragement.

I understand that Cavendish re-invest the commission to cut costs. If I went back to the IFA on this basis, is this something an IFA could just choose to do for a pro-rated fee instead, or is that not the way things work?

Like I say, I'm not opposed to paying the IFA something, it seems fair... But that doesn't run so far as to paying £4800 extra to get them a £1500 commission!

magpiecottage

One of the problems the IFA faces is a lifetime of liability for his advice.

Earlier this year FOS found against an IFA over a policy which was cancelled in 1996. The adviser had no surviving evidence of why it was sold so FOS concluded it was missold.

Advisers have to factor that possibility into their charges.

You may, of course, think that is fair but if you or I, or an accountant or lawyer or surveyor make such a mistake no action can be taken against us over it after fifteen years precisely because it is unlikely that a dispute could be fairly assessed.

Unfortunately, it seems that one rule applies to financial advisers and one to the rest of us.

So they need to factor that risk into their charges.

jamesd

An IFA has to offer a fee alternative to commission. It's part of what is required to get the I part of the title. The adviser will see the complete lack of logic in you paying £4800 more and and them getting only £1500 of the difference. They might suggest a fee of £1500 as an initial thought, if they can otherwise match the price. And you might ask them how much it took in hours to make the recommendation and what needs to be added on top of that to cover their costs and overheads that is not already included in the hourly rate.

What would be more troublesome is if it's just an FA and if the FA has to share significant commission, say if they are working at an estate agency that might get a lot of it.

It was correct for the adviser to initiate the discussion. Protection products do often get taken care of in conjunction with mortgage purchase because that often means that a couple is settling down and looking at managing the various risks of that and what might happen with children and such.

If you have defined contribution pensions it's worth knowing that those pay out the value on death, tax free if no income or lump sum has previously been taken. In a way, a sort of accumulating life assurance policy bundled in with the pension, though it's just the pension pot itself being paid out, not anything more.

It's fair enough to reward the FA for their service, just takes finding an appropriate way to price it. That might include paying them just for the advice and buying from Cavendish if their insurance costs make it too costly for you to buy it from the IFA. They have to do things like pay for professional liability insurance that Cavendish doesn't have to pay for because Cavendish isn't giving any advice.

kingstreet

This is definitely independent financial advice you are receiving?

£63 per month would not get us anywhere near £1,500 commission from L&G.

At 200% of the API, that sounds more like tied-agent commission to me.

Carefully check section 2 of the combined/insurance initial disclosure document you've been given. What does it say about "whose products do we offer?"

Why critical illness cover and not income protection? How long would your employer pay your salary if you were unable to work due to illness or disability? What happens when it stops?