What exactly are the monetary changes under the RDR for the affected parties and policies? My understanding is that the client pays the FA an advisor fee and then is charged an ongoing fee from future premiums which gets paid to the FA. The life companies are not remunerating the FA's in any way. How does this work practically? Does the customer pay the FA directly or does the life insurer forward the FA their fees from the premiums that they are paid? What is the shape of the fees like now compared to previous i.e. is the IC:RC roughly the same or has it changed to reduce the IC weight to satisfy the customer (assuming they prefer to see more of a smoothed charging structure)? Does the client see 2 charging structures now - the FA and the insurers charges? If so have the insurers changed their product charges accordingly? Excuse my ignorance but I have no idea of the changes made at ground level and the course notes don't really go into this, possibly because it wasn't clear at the time. Any help much appreciated - thanks
The policyholder can pay the financial adviser directly, so that the insurer is not involved in paying the FA in any way. Alternatively, the policyholder and FA can agree a series of fees - they then inform the insurer to load these into the premiums and then the insurer passes these fees onto to the FA as they fall due. Insurers will have had to redesign their contracts and systems (perhaps significantly) for these changes. In the past, the insurer would set commission terms and bundle these together with their other expenses when setting charges. Now the insurer must calculate its charges/premiums on a zero commission basis, but then be able to load on top the fees agreed between the policyholder and FA. The policyholder will therefore be able to see very clearly the two set of charges and hence how much goes to the FA and the insurer respectively. The big concern was that many policyholders would no longer get advice because policyholders would not agree to fees as large as commissions have been in the past, and financial advisers wouldn't remain profitable if they only got the fees the policyholders were willing to pay. For this reason may financial advisers are expected to move upmarket or cease trading. It would be interesting to hear if anyone has observed any patterns in the size of fees and the split between initial and renewal. Best wishes Mark
Cheers Mark I should really call them Financial Advisors it can't be good luck using the shorthand FA so much before an exam
