Presentation on theme: "Financial Planning Feedback - November 2011. On Friday the FSB asked for comment on a paper published as a follow up to their 2006 paper (Deadline March."— Presentation transcript:
On Friday the FSB asked for comment on a paper published as a follow up to their 2006 paper (Deadline March 2012). Three broad Issues: Commission on Investment business Commission on Risk business Status of Intermediaries and their advice. The Big Gorilla in the room
Intermediaries should determine their charges independently of product suppliers. Disclose and agree these fees directly with clients. Arrangements apply to both independent intermediaries and in-house agents. Fees can be upfront or ongoing or a combination of the two. Fees can be deducted from the client’s investment by the product supplier, where authorised by the client. Investment directions
Concern that upfront commission could lead to inappropriate advice. After the regulatory reduction in commission payable on investment business, there has been a swing away from investment sales towards risk sales, increased levels of churn of risk business. This indicates that regulatory intervention may be necessary. A fee-based approach is not intended for risk business - a shift towards as-and-when commission is proposed. Ongoing remuneration should only be allowed if ongoing services are rendered. Life Insurance – Risk remuneration
Status of Intermediaries and advice Intermediaries will have to disclose whether they provide: independent advice service, or restricted advice service, or both. What constitutes “independent” advice will need to be resolved Product specific advice and other intermediary services – currently remunerated by means of regulated commission, or in some cases (recent court decision not withstanding) by means of a negotiated advice fee; Services provided to policyholders that fall outside of services as intermediary (if any) – for which a fee could be agreed with the policyholder;
Status of Intermediaries and advice Binder functions provided to or on behalf of insurers – for which a binder fee is payable; and Outsourced services (other than binder functions) provided to or on behalf of insurers – for which a fee can be negotiated with an insurer. Binder fees and outsourcing fees are subject to separate regulatory initiatives, i.e. the draft binder regulations and the draft outsourcing directive, respectively. Such fees must be reasonable in relation to the work undertaken.