Other proposals on financial product fees
Other proposals in the Retail Distribution Review (RDR) relating to fees on financial products are:
If an adviser is paid by an entity that provides financial advice only, the entity’s remuneration to the adviser for advising on investment products cannot exceed what you pay the advisory firm for advice.
Maximum fees that can be paid to intermediaries who sell short-term insurance and life policies in terms of what are known as “binder agreements” will be set after consultation with the industry. Binder agreements cover arrangements in which insurers outsource certain functions, such as drawing up policies and settling claims, to advisers or intermediaries.
Life assurers that sell credit life assurance, which covers your debt if you die or are disabled, are currently allowed to pay commission of up to 22.5 percent if the intermediary who sells the policy does “administrative work”. The RDR document proposes that the current maximum of 7.5 percent for policies that do not involve “administrative work” is applied to all policies and that additional remuneration is paid in terms of the outsourcing or binder proposals in the RDR document.
No remuneration or financial interest – direct or indirect – other than that specifically provided for in the legislation governing financial products may be paid by product providers or received by advisers or intermediaries.
An insurer should be prevented from cancelling your short-term insurance policy until it has received confirmation that you are aware that your policy is being cancelled and you have had a reasonable opportunity to secure alternative cover. This is to prevent policies being cancelled with brokers without you, the policyholder, being aware that your cover is being cancelled.
The provisions in the code of conduct under the Financial Advisory and Intermediary Services Act will be reviewed to mitigate conflicts that arise when entities provide you with financial product comparisons – for example, quote comparisons for short-term insurance – and are also remunerated for providing the product provider with leads or referrals. The RDR document suggests a review be undertaken to ensure that the remuneration paid to product comparison providers is reasonable, is in line with the service provided, and is not conflicted.