Opinion: Commission vs fees?

To quote Johnny Cash and his classic Folsom Prison Blues: “I Hear The Train A-Comin’; It’s Rollin’ ‘Round The Bend’…”

The Financial Conduct Authority has implied (I believe) that it is inevitable fees will replace broker commissions despite wailing, gnashing of teeth and well-intentioned protestations from some in the broker community.

I wonder if we should be pushing back so hard. Please take a moment to consider how we never ask a greengrocer what their profit margin is when selling us an apple whereas an accountant or a solicitor will often open their conversation with a discussion about their fees.

Ask yourself which profession do we aspire to be more like?  We, as brokers, often bemoan we never get treated as professionals by our clients and of course we don’t; because the vast majority never pay us for what we do!

Payment

We have an inherent conflict of interest because we get paid a commission by the insurer, the amount of which is often linked to how much business we give them.

I suspect when fees, probably linked to mandatory commission disclosure, eventually come in, a number of clients will be grossly unimpressed at how much we earn out of them for what they perceive is simply selling them a policy.

But this is where our professionalism must come into play so we can demonstrate everything we do for them and highlight the advice they get and how much it might save them in the long run.

When I formed Prizm Solutions 16 years ago, I felt it was inevitable our profession would have to go fee-based if we were to be taken seriously. What muddied the waters was clients who’d never seen us propose a fee suddenly become very uncomfortable at paying us. A hidden commission is far easier to sell because the client only sees what we want him to see, the overall premium charged by the mean nasty insurance company.

Value

What we must as a profession begin to understand is our own worth. We are bl**dy good at what we do and we deserve to be treated with the same respect as fellow professionals such as accountants or solicitors and move away from looking like used car dealers.

We don’t sell used cars or apples and pears, we sell a complicated protection product that, if set up correctly, can protect a consumer or a business if a disaster were to befall them.

We must understand as a profession that it isn’t a case of ‘piling it high & selling it cheap’ we need to appreciate our own time and to all those brokers out there I would strongly urge you to start looking into time management systems so you can show the client all the work you’ve done for them.

Balance

When I go see a client and I got the previous years’ fee wrong, I simply show them the work I’ve done & give them three options. A) They cause me less work, b) I charge them more or, c) we agree to have a parting of the ways and it is a simple as that. I am not a charity and will rarely lose money on a client two years running.

Conversely, if I pitched the fee too high, 12 months later it’s a great meeting to have with the client when you can sit down and say I’m charging you less this year because you didn’t have any claims and didn’t cause me any grief. Then they begin to understand that causing me grief costs them money.

There will be winners and losers if the industry is forced to adapt to charging fees instead of commissions. The larger cases (especially property owners) will cause brokers problems because of the potential hit to their bottom line, but, once again, I come back to the point we are supposed to be professionals so we should justify what we do and earn, and not just take the biggest commission on offer so we can have nice, plush offices

On the flipside, micro SME clients will have to accept if they want a broker to help them it’ll cost them a lot more than buying direct and getting a non-advised sale.

But that is the key point, we are giving advice and should be paid fairly for it.

In in summary, to quote Bob Dylan in his classic: “You better start swimmin’ or you’ll sink like a stone. For the times they are a-changin’.”