Life Insurance Broker
Why IFA’s are usually the best brokers and how they charge.
Your life insurance broker is ideally an independent financial advisor- usually it’s best to keep away from tied agents who can only sell one type of product. IFA’s charge on either a fee or commission basis, and can usually offer you a deal that’s just as good as going direct to a life office.
If this were a wildlife television programme, we would say that the life insurance broker comes in many colours! There are three to consider. First is the “Tied Agent”; usually he calls himself just an agent. This hides the fact that he is tied to just one company, and is only qualified to advise on their products. Clearly he has little to offer.
The life insurance broker we like the best is the independent adviser: he has the whole market at his beck and call, and can offer you impartial advice on the product best suited to your needs.
The third category is the panel agent: he has a panel, usually a fairly restrictive list, of providers- as you can imagine he is not much better than a tied agent.
Now, since you’ve sensibly gone to see an independent financial adviser (IFA), you want to know how they charge. Interestingly, the legislation around IFAs has changed fairly recently, such that they are obliged by law to charge for the advice that they offer (there is a good legal reason for this- it creates a transaction, which increases your rights if you feel you’ve been given bad advice later). However, you won’t usually have to pay for that advice, and here’s why. Advisers earn money on commission (they take a slice when they sell you a product), or they take money in fees (for advice, or on a flat-rate basis for services rendered). Often, the fee for advice will be taken out of a commission, and therefore your advice is effectively free. Note also that you pay VAT on fees, but not on commission payments.
So, when looking for a life insurance broker, definitely plump for an IFA, and establish their charging methods first (incidentally the Financial Services Authority keeps a register of all authorised advisers, you might also try SOFA- the Society of Financial Advisers) for a recommendation.
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