Norwich Union to use upfront commission to boost regular savings

Norwich Union is attempting to boost the number of people who invest regularly in its funds.
It argues, persuasively, that there should be a better balance between lump sum investments and regular savings into funds

At the moment the scales are heavily tilted towards lump sum investments, which make up 95 per cent of the money going into funds.

However Norwich Union’s solution to the problem is rather more open to question. From the start of last month it introduced a radically different form of commission payment for independent financial advisers (IFAs) who recommend regular savings in its funds.

It replaced the standard 3 per cent commission on each monthly premium, which used to give an IFA £3 on a £100 a month premium, with a new upfront scheme of commission.

This would offer a one-off upfront payment of 20 per cent of the value of the first year’s premiums. So an IFA with a client paying regular premiums of £100 a month would receive 20 per cent of £1,200, or £240. In exchange for the much bigger initial commission covering year one, there would be no further commission on each new monthly premium in subsequent years. However IFAs would, as before, continue to collect renewal, or ‘trail’ commission of 0.5 per cent a year from the fund’s annual charge.
Norwich Union says it is making the change because it believes many IFAs simply cannot afford to service the regular premium market under a system where they are paid just £3 a month - or £36 a year - on a £100 a month premium.

Its hope is that the new scheme, with its much more substantial initial payment, will encourage more IFAs to get involved in the regular savings area, while more customers will benefit from good advice.
But some IFAs, who are paid through fees rather than commission, argue that loading commission on to the front end of a long-term savings product, which is what is happening here, has often proved a recipe for diaster in the past, and point to the mis-selling scandals involving endowment mortgages and personal pensions.

Norwich Union’s initiative to promote regular savings is to be welcomed, but if it has money to spend on an incentive, it might be better used in cutting the initial charge of about 5 per cent which investors pay on each monthly premium and combine this with an advertising campaign directed at private investors.

What do you think?

Comments

[Robert Lowing]

How is this for an idea? Commission should be paid at the end of a plan IF the plan makes the planned profit.....how about spreading some of the risk?