# National Consumer Agency comments on insurance industry



## Brendan Burgess (24 Oct 2007)

Ann Fitzgerald, the Director of the National Consumer Agency made some telling points to a recent meeting of the Insurance Institute. These were reported by Kathleen Barrington in the [broken link removed]


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## LDFerguson (24 Oct 2007)

It’s an interesting piece. I’d have a few comments: - 

She seems to be confusing trailer commission and renewal commission. Trailer commission is the one described in the article, usually paid as an addition to the Annual Management Charge. Renewal commission is the commission on a life assurance or pension regular premium product from year two onwards. For example, commission on Term Assurance products tends to be around 90% in the first year and 3% from years two onwards – the 3% is referred to as renewal commission. 
In my opinion, trailer commission should not be taken by a broker unless there will be ongoing service. For example, I have some clients who have lump sums invested with me and want quarterly performance reports. So, by mutual agreement, I get trailer commission on the lump sums and that pays me to do the updates. But taking trailer commission with no ongoing service is questionable. 
A broker cannot waive renewal commission on term assurance products. 
I think mandatory reporting of TER for all investment products (including currently unregulated ones) is an excellent idea. 
While obviously rip-off commissions and charges are a bad thing, I think everyone needs to be careful about how low charges can be pared, particularly on pensions. Although AAM’ers will actively seek out low-charge products, this is not representative of the population as a whole. Pensions still need to be sold and are not proactively bought in large numbers. Quinn Life have a very low-charge pension product and yet do relatively small amounts of business compared with other companies. Even if someone brought out a product with no entry or exit charges and 0.25% AMC it wouldn’t sell in big numbers as there would be no margin for sales. There has to be a balance between restricting charges that are clearly excessive and leaving enough meat on the bone to incentivise sales people to sell the things. Stakeholder pensions in the UK had very low charges but didn’t sell.


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## Brendan Burgess (25 Oct 2007)

Harchibald believes that Brendan Investments should be  higher priority for the National Consumer Agency. I have moved his comments on this issue to here


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## Duke of Marmalade (25 Oct 2007)

_Sir Fergie_, I recall the evolution of this trailer commission thing.

In the beginning there was the anti-competitive Commissions Agreement which stipulated the Maximum commission on bonds as 3.5% Up front *OR* 0.5% trailer.

Then the CA got overturned and consumers were freed. Menus of commissions appeared and bond commissions became 3.5% Upfront with an optional (on the part of the broker) *additional* 0.5% trailer.

The more squeamish felt this positive optionality a bit in your face and so the norm now is for *standard* bond commissions to be 3.5% *plus* 0.5% trailer with the optionality now being to waive part or all of this standard. 

It is an obvious slippery decline from the former position and worthy of being highlighted by the NCA.

In your case you make it clear that the optionality is with the consumer, and that gets the Harchibald blessing, but how scrupulous are others in that respect.


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## F. Kruger (25 Oct 2007)

If the Director of the NCA is to address this in a balance way, she should also include a detailed analysis of the Product Providers charges *before *the cost of distribution/advice is added.

Dare I suggest that fund management charges be scaled in such a way that they increase, from a nominal %, based on the return achieved by the the fund managers. Or at least, give the punter the choice of a fixed % or increasing scale AMC relative to its performance.


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