If you ever meet a group of financial planners at a braai and want to see a good fight start up, simply ask....What do you guys think of the fees debate.

Sit back and watch the temperatures rise. 

After nearly twenty years in the Financial Services Industry I have made a momentus decision; I am moving to the fee route. This means that I will no longer accept commission on products sold.  In future clients who work with us will pay an advisory fee.

There are many reasons for the change. I guess the first being how expensive commission becomes.  

To illustrate the added costs which the commission model generates, I drew a quote for a male, non smoker, whose work is office based. For level premium cover, the premium before the commission element is added is R1 620.25 per month.

If the same policy were to be issued with commission expenses, the premium would be R2 094.44. The commission cost element for premium is R474.19 pm. The increase in premium to accommodate commissions being 29.26%

Over ten years the client repays R56 902 to the insurer who hands less than half of that amount R25 080 to the broker, the rest feeds the interest for the loan.

As very few clients keep a policy for that long; most will upgrade their cover, the actual costs are considerably higher.

It seems to me that this client could pay the broker a fee via debit order, save nearly half the costs and still come out on top. They will also know that no matter how many changes I make to their portfolio, commission will never be the motivation.

Visit our Website for more about the above: http://www.northwood.co.za/

Comments (1)

The big picture
written by Rodin van der Laan, November 06, 2007

Very interesting analysis