Brokers getting fees from ARF managers

[Villaines]

Can we consider why insurance companies are willing to handle over a sizeable chunk of the annual fee to a broker?

Is this a response to claims of mis-selling?

It seems to be a bizarre decision - albeit that collectively the cartel just agrees to do this and the pensioner ultimately bears the cost - but wow, why not just advertise that you offer the best fee for asset management and administration (including PAYE etc), why bring in an intermediary at all?

Is this the case in other countries too? Why not sell directly?

 

[Protocol]

Car, house, life, travel, EL, PL

Why do brokers exist to sell these insurances?

Why does Nike use shoe shops? Why not sell all shoes direct?

Why can't I buy a car direct from Ford?

There are reasons that intermediares exist.



In many cases, the brokers deliver the customers to the assurer/pension firm, and often set-up the policy, so obviously they get paid for their efforts.


You are of course free to use an execution-only broker, with lower fees.

Some pension firms do sell direct.

 

[Villaines]

Car, house, life, travel, EL, PL

Why do brokers exist to sell these insurances?

Why does Nike use shoe shops? Why not sell all shoes direct?

Why can't I buy a car direct from Ford?

There are reasons that intermediares exist.



In many cases, the brokers deliver the customers to the assurer/pension firm, and often set-up the policy, so obviously they get paid for their efforts.


You are of course free to use an execution-only broker, with lower fees.

Some pension firms do sell direct.

Would you be willing to take on an apprentice broker for a few months - just until I retire?

 

[Dave Vanian]

Can we consider why insurance companies are willing to handle over a sizeable chunk of the annual fee to a broker?

What you describe is known as trail commission - where the broker gets an ongoing percentage of the fund, paid for as an additional to the annual management charge. It must be fully disclosed from the start and the broker must advise what service they will provide in return for it. If you don't want trail commission to be paid, you can agree with your broker that it won't be.

As a broker, some of my most time-consuming customers are ARF customers. They are people who find themselves with a lot of time on their hands. They like regular reviews of their ARF and their fund values. They need help with figuring out what level of withdrawal to make, taking into account other income and tax bands. ARF providers will not provide any advice.

 

[Gordon Gekko]

My guess is that the Venn diagram of people who obsess over fees and people who look for someone to sue when things go wrong is just a single circle…

 

[Villaines]

What you describe is known as trail commission - where the broker gets an ongoing percentage of the fund, paid for as an additional to the annual management charge. It must be fully disclosed from the start and the broker must advise what service they will provide in return for it. If you don't want trail commission to be paid, you can agree with your broker that it won't be.

As a broker, some of my most time-consuming customers are ARF customers. They are people who find themselves with a lot of time on their hands. They like regular reviews of their ARF and their fund values. They need help with figuring out what level of withdrawal to make, taking into account other income and tax bands. ARF providers will not provide any advice.

Is it fair to say that the insurance companies agree arrangements with hundreds of different brokers rather than have big direct sales teams - is that how it works?

And the broker has a letter of appointment to act as an intermediary for the insurance company?

It's just that I see brokers seemingly saying that they can arrange an execution only with specific insurance companies rather than multiple, not sure why that is the case, maybe it's the best deal at the time, maybe it's the most favorable for that broker in terms of commission - I suppose there's no harm shopping around, see what rates and products are offered.

 

[Steven Barrett]

Can we consider why insurance companies are willing to handle over a sizeable chunk of the annual fee to a broker?

Is this a response to claims of mis-selling?

It seems to be a bizarre decision - albeit that collectively the cartel just agrees to do this and the pensioner ultimately bears the cost - but wow, why not just advertise that you offer the best fee for asset management and administration (including PAYE etc), why bring in an intermediary at all?

Is this the case in other countries too? Why not sell directly?

financial products operate in a highly regulated industry, a job that the advisor does. If the product producer didn't use an intermediary, they would have to do the client facing compliance themselves. Some use a direct sales team...which has to be paid too, so there isn't a cost saving for them.

Is it fair to say that the insurance companies agree arrangements with hundreds of different brokers rather than have big direct sales teams - is that how it works?

And the broker has a letter of appointment to act as an intermediary for the insurance company?

It's just that I see brokers seemingly saying that they can arrange an execution only with specific insurance companies rather than multiple, not sure why that is the case, maybe it's the best deal at the time, maybe it's the most favorable for that broker in terms of commission - I suppose there's no harm shopping around, see what rates and products are offered.

Execution only is you say that you want a product with a specific provider and you pick the funds yourself. If they offer multiple providers, it will lead to them getting lots of questions on the different products. This will not be execution only and they will probably fall foul of the Central Bank. Given most execution only brokers have gone to considerable expense to create the online facility to create online offerings and get paid for volume business, it is not a good business strategy to put yourself in a position that will get you shut down.

 

[Dave Vanian]

Is it fair to say that the insurance companies agree arrangements with hundreds of different brokers rather than have big direct sales teams - is that how it works?

Companies usually offer a big range of charging structures on each product to their appointed brokers and the brokers can pick from the range of options.

Some companies have direct sales teams also who get paid commission in addition to a panel of brokers.

And the broker has a letter of appointment to act as an intermediary for the insurance company?

Yes - a broker will have letters of appointment with each of the insurance / pension companies with whom they hold an agency.