Moonstone: Short-term Remuneration Review

I have read with interest comments arguing differently. However, I have been 35 years in this business and are doing all the same jobs described by Alan AND still be happy with my normal commission. Without additional fees. NOTE: it gives me the edge when I approach a client of a broker who does charge fees.
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When it comes to remuneration, the question should always be: Is it a fair wage? Therefore, FSP’s should be in an even position with FPP’s and should not claim unfair fees on top. The post office scenario is an irresponsible and insulting comparison as to what FSP’s have to do in order to deliver advisory and/or intermediary services, as opposed to delivering packages, letters or mail. Other comments made by such person should also be treated with utter contempt. If there were no intermediaries, where would the FPP’s get the “qualified” workforce to take the FSP’s places? How would they restructure their TCoE (Total Cost of Employment) if they have to add so many additional people to their wage bills? Or – Will they reduce the (now direct) premiums by 16%? They will have to, because the FSP’s have disappeared – and so did the post office work that goes with it. No cost to them now. What funds are they going to employ to obtain new business or to maintain existing accounts? If they use the same 16% they would have used to pay commissions – there will be no saving to the client. Furthermore, who will be responsible for compliance of the additional staff – or will compliance come for free as well? Why would anybody then want to do away with the broker? This will lead to many job losses due to fewer people being employed by FPP’s – common sense. This will extend into revenue losses to SARS and fees to the FSB. On the other hand, the FSB will just re-invent the licensing process, re-exams and higher fee structures. Bear in mind, additional employees will not only have an impact on the FPP’s wage bills. It goes further – to mention but a few - • Office space, office equipment, communication means and motor vehicles • Costs with regards to Complying with Labour Laws, FAIS Act, etcetera • Employment Absences – annual-, sick-, maternity- and compassionate leave • Contributions – medical, pension, vehicle and other such as study costs We shall now take a look at one possible distribution model of premium income. (There will obviously be variations to this model, but let us use this one for the moment) Claims 60% Operational/Admin cost 15% Commissions 16% Re-insurance Cost 4% Reserves/investment 5% The above shows that Operational cost for the FPP and Commissions payable to the FSP are relatively similar. In other words: It is a fair wage, although FSP’s still have to make a profit from that. Do you remember the FAIS Fit & Proper Requirements? Does Financially Sound, ring a bell somewhere? Lastly, should separate fees being necessary to be added by any FSP, they will surely also add up to the cost of the FPP, if we had no FSP to bear it – therefore – • FPP - It will be added to the premium (cost to client) or • FSP - It will be added to the invoice (cost to client) With regards to Alan’s administrator’s cost, that would be a fair cost to raise as printing cost is a major expense – with one difference though – The FPP’s should pay this from there 15% operational/admin cost due to them now saving those costs. It should not be for the insured’s account.
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Ban the so called policy fees which are charged in addition to the commission already paid by the Insurers-it just puts pressure on the consumer without him/her getting anything extra for that- brokers are too lazy to work harder to get more commission, so they load the policy with the policy fee in order to earn more from less clients- it's a shameful practise that should be stopped by the FSB.
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Fees charged are for services provided over and above the services provided by a broker who acts as a post office. Brokers who administer policies do so at great cost. These costs include, Compliance costs, Staff Training, highly developed and expensive insurance software, additional staff, paper costs, printing costs, lets call it what it is, a very high level administration costs to income ratio. Whilst some may do so to increase income, the fact is administering policies is an expensive business but in house policy administration provides a better service to our clients. Whilst there may be brokers charging exorbitant fees, most certainly do not. Removing fees completely, will slim down margins, reduce profitability which will ultimately result in job shedding, which will reduce the level of service to the client. Our company acts as a a post office for some insurers and let me tell you the level of accuracy and service is appalling. All that this constant attack on the broker industry is doing, is creating barriers to entry on all levels. It is stifling the entrepreneurial spirit and forcing quality brokers out of the industry. Andre Stols I guarantee that you will find brokers out there that will provide you with a better deal than you may find with the direct insurers inclusive of broker fees, so I cannot see what the issue is with fees if a consumer is paying less than what they would pay with the direct insurers. A client has every right to shop for the best possible deal and most brokers do this for the client, so I am not sure where the laziness comes into this. The fact is brokers act in the clients best interest, we are not driven by money alone. The cornerstone of the FAIS regulation is honesty and integrity. We have to jump through major hoops to make sure that we have these qualities and even once we have proven to have these qualities the regulator continues drown the industry in regulation. The major driver of the requirement for fees is the same lot that wants to take fees away from the broker; the Regulator!
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What is called policy fees are normally the fees which the Insurer charges the client for the facility to pay his premium monthly, ie the debit order fee. This is normally all which the administrator charges and which has to cover all his costs as set out by Alan above, So where is the client paying more? By the way Mr Stols do you go out hunting for your clients on a daily basis and what is your success ratio?
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