Aegon eyes cut in adviser commission
UK insurer Aegon is considering a cut in the record-breaking 9% commission it offers to advisers putting clients into a structured bond, ahead of proposed changes to fee structures by the UK regulator.
Advisers say Aegon’s 9% upfront commission is the highest in the life assurance industry. It is likely that Aegon will bring it down to 7%, in line with several rival products from life assurers.
The Financial Services Authority is concerned that the payment of generous commissions by managers to advisers leads to conflicts of interest.
Intermediaries in the wealth industry run the same risk. An increasing number of private banks are passing commissions, known as retrocessions, back to clients.
The FSA has said that clients should be aware they are paying for the services of advisers. It believes the two sides should sit down and decide whether clients should hand over a fee, or whether charges should be covered by a commission stripped out of the value of their investment portfolio.
Aegon has broadly welcomed the recommendations, which are out to consultation, as has its trade body, the Association of British Insurers. They are due to be adopted by 2012.
Independent adviser Towry Law refuses to accept commissions. Chief executive Andrew Fisher said: “When penicillin came along, the doctors who used leeches to cure their patients became redundant. Commission payments to advisers will soon look equally outdated.”
An Aegon spokeswoman said commissions payable on its structured bond, known as Investment Control, comply with the spirit of the proposals, because advisers and clients are given various payment options. She said: “Only 3% of the 3,000 policies we have sold imply the payment of 9%. Most agreements have been at 4.8%.”
Independent consultant Ned Cazalet said fees on life assurance products would fall from the 7% level once clients start being presented with bills: “Life assurers have been using high commissions to steal business from each other. When commissions fall, some of them will have to close to new business.”
Friends Provident recognised that the payment of high commissions to win personal pension business was uneconomic at the start of this year, when it decided to discontinue their sale to concentrate on the corporate sector.
A Friends spokesman said: “We need to make money for our shareholders if we are going to look after our customers effectively.”
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