Moonstone: Minimum production levels
The point made was that the cancellation of broker contracts by product houses when production reached a certain minimum level was in itself causing a conflict of interest. It forces the broker to recommend products which may not be in the interest of the client, but would ensure retention of the contract.
A number of issues evolved from this.
* The FSB’s concern was with the future provision of service to the “orphan” client as his broker was no longer contracted to do so. Those folk who were concerned (and outraged) about the regulator’s insistence on a business continuation plan for FSPs will recall that the very reason for this was also to ensure continued service to the client.
* From personal experience I can vouch for the practice of trail commission only being paid for a year after termination of the contract. A broker recently asked whether this then means that the client’s account is no longer debited with the cost of the commission. Can someone enlighten us on this?
* If one looks at how service to brokers have been downscaled over the last ten years, one has to ask just how much the threat to cancel a contract is based on cost factors. It would seem to rather be a form of coercion, which makes the claim by the broker regarding it creating conflict of interest a very valid one.
A final point: I receive really horrific examples of bad after-sales service from product houses which brokers very often have to attend to at their own cost, many of these cases where they service products sold by a previous intermediary.
