Independent Financial Advisor charges

tigersue · 4 July 2017 at 10:06AM

I have an independent financial advisor who used to advise on pensions, life insurance etc. at a previous workplace from about ten years ago.

For the last few years I have been working as a contractor and at the end of last year he arranged an income protection policy to cover me in the event of long term sickness. Six months into the policy I have been offered, and accepted a permanent job with the company I have been contracting for and which offers better cover as part of the terms and conditions. As I now have better cover for free I rang up an cancelled the policy... I realise in retrospect that I should have contacted my advisor and that not to do so was very thoughtless of me.

However, he has now emailed me to tell me that most of the commission he received for setting up this policy (£1500) has been taken back and has proposed that I pay him a settlement of £1000 for this (£200 he can take from my pension as he is changing the payments) leaving me with a bill for £800. This seems somewhat extreme for a policy which cost £83 per month in premiums... Had I known that I would incur such a disproportionate fee for cancelling the policy I would have either not bothered or arranged my own. At no point was I told that cancellation would result in a charge.

Is this normal practice? I realise that I have been rather naïve but I think that £800 is a huge amount of money in comparison with the policy payments. I've always been happy with the pension and other advice but this has come as a bit of a shock.

Thanks in advance for any advice.
Tigersue

Advice would be much appreciated...

Malthusian · 4 July 2017 at 11:03AM

At no point was I told that cancellation would result in a charge.

If true, then he is behaving appallingly. This is the risk advisers run when they take indemnity commission instead of charging a fee upfront.

My first instinct was that you should tell him to go forth and multiply, but I have seen fee agreements which contain a paragraph to the effect that if you cancel a policy resulting in commission being clawed back, the IFA reserves the right to charge you a "reasonable" fee for the work undertaken. However, this is the first I have heard about such a paragraph being enforced.

It would therefore be irreponsible of me to say you owe him nothing, but if this is what is going on, charging someone £1,000 on the basis of small print, a figure they never agreed to explicitly, is highly dubious.

I would start by saying that you were under the impression that he was working on a commission basis and at no point did he say that a fee would be charged if the policy was cancelled, and ask him to send you whatever it was you signed that says you are liable for the clawback. The first step is to find out whether he even has a leg to stand on.

The fact that you did not inform him in advance is neither here nor there. You were hardly going to continue paying for a policy that you probably would never have been able to claim against just so he didn't get his commission clawed back. (Income protection policies will typically not pay out if you are already covered elsewhere - they don't want you to be better off by not working.)

sandsy · 4 July 2017 at 4:44PM

What were the terms and conditions of your agreement with the adviser? Are the charges he wants to levy on you now laid out in the T&Cs?

tigersue · 17 July 2017 at 12:43PM

Thank you both for the replies.
We never had a signed agreement on the basis that the work was being done. It was always done on a commission basis and I have never been made aware of the possibility of "clawback" of commission or of subsequent charges to myself for this.

I have given it a bit of time for me to cool off, plus I was away at a conference for a week and somewhat distracted so I have now told him that I am not happy with the charge and asked for a copy of any agreement that I have signed which could justify the charge.
I really appreciate the help with this, I'm finding it really upsetting as I'm not good at confrontation and to get an objective view is really helpful.

Thanks again,
TigerSue

dunstonh · 17 July 2017 at 12:59PM

Fee with commission offset is viable payment method and can work quite well for a consumer when done correctly (often the fee is less than the commission but you avoid having to pay it all up front).

For it to be enforced, the court asks to see a copy of the agreement signed by the client. If the agreement exists, you don't have a leg to stand on. The courts will go with the adviser. We have actually taken someone to court on that basis before and won easily. I know a number of others that have done similar.

If there is no agreement, then there it will not go with the adviser.

A number of estate agent mortgage brokers have been known try this on a number of times and don't have an agreement in place and they will huff and puff and threaten but never follow through as they have no agreement. They hope the scare tactics will work. So, there are some that use the method unfairly.

It all comes down to the agreement.

charoniv · 17 July 2017 at 4:02PM

It's also worth checking whether that policy was suitable - i.e. could you have claimed on it.

Skibunny40 · 17 July 2017 at 4:22PM

I had an almost identical scenario, except I was lucky and raised the question of cancelling my policy early on in our business dealings.

I was furious that the clawback hadn't ever been mentioned and pointed out it completely broke the trust I felt was essential to have with an IFA. I was still in the middle of setting up S&S ISA's with him so I stopped that immediately although kept the insurances so no clawback was required (just didn't take up the option of insurance via my work).
IFA then tried to charge me for the "work he had already done" on preparing the ISA options for me. I threatened to go to his bosses to seek their opinion on the matter ( it was an in-house IFA with a firm of solicitors) and never heard from him again!
The clawback runs out after 4 years apparently - then I'll look at taking up my work insurance instead.

dunstonh · 17 July 2017 at 4:59PM

charoniv wrote: »

It's also worth checking whether that policy was suitable - i.e. could you have claimed on it.

The OP said it was income protection. So, why wouldnt it be suitable?

charoniv · 17 July 2017 at 5:04PM

dunstonh wrote: »

The OP said it was income protection. So, why wouldnt it be suitable?

Depends on the terms. Length of contract, whether employed by ltd company, terms of contract, definition of able to work etc.
I've had lots of companies trying to sell me these things which would be worthless.

For the premium amount here it might be OK though.

dunstonh · 17 July 2017 at 5:34PM

Depends on the terms. Length of contract, whether employed by ltd company, terms of contract, definition of able to work etc.

We are talking about income protection though. Even housewives can have income protection. Employment or self-employment is not an issue.

I've had lots of companies trying to sell me these things which would be worthless.

If you were talking PPI then you may have a point (although there is no clawback period on PPI). However, income protection is underwritten at point of sale. Not point of claim. So, full medical disclosure is given up front along with occupation and lifestyle risks and the insurer is aware of that information before they offer terms and cover.

charoniv · 17 July 2017 at 6:24PM

True, if it is applicable to the situation then it's not a problem. I agree it is possible to get useful policies but it is also possible to get policies that aren't and still called income protection.
e.g. how does it define income, how does it define occupation, ...
Things you would expect the IFA to understand but maybe not.

Of course regulations may have changed and this might not be an issue any more.

Independent Financial Advisor charges

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