Delayed commission payments introduced by Legal & General last year might be a sign of what's to come, despite the headaches the policy causes for advisers, the industry has said.
Stuart Gregory, managing director of Lentune Mortgage Consultancy, told FTAdviser he has endured “several months of frustration” as his small broker firm continues to struggle planning around the delayed commission income.
L&G changed its policy in August last year and now pays commission only when the first premium is paid. The insurer said this was a “deliberate move” to combat the administrative “headache” of commission clawback if policies are cancelled.
But Gregory argued the administrative headache has now been placed on advisers, who are left to chase up the insurer to find out when they’ll be paid.
He said the change added “further unnecessary delays to receipt of funds”, suggesting in “many protection cases” advisers already have to wait 3-4 months for medical underwriting to complete before a policy even goes live.
“It does matter when you may have been waiting for three months or more for medical underwriting to add another month. How can firms plan for it?," he said.
He continued: “We're a small firm, so it's an inconvenience with planning. But if we had 10 or more advisers, I could imagine it would potentially cause big admin problems including cashflow.”
Gregory also pointed out the insurer releasing commission was only part of the payment journey, as networks had to then process it before it could reach the adviser.
But he predicted L&G's move was a sign of what's to come.
“Very few insurers hold back payment to brokers until the first payment, but I expect more to follow L&G’s lead.”
The Association of British Insurers did not want to predict the future and simply said: “Adviser and insurer agreements are a commercial arrangement between them and will vary across the market.”
No standardised methods
Other protection advisers said they have experienced similar wait times and suggested a standardised way of getting paid could help firms.
Lewis Shaw, founder of Shaw Financial Services, said: “There doesn’t seem to be a standardised way of getting paid, having dealt with companies [in the protection industry].
“It’s unbelievable that in this day and age there isn’t a standardised method when we have all this technology out there."
Shaw is a one-man bad, but he acknowledged the difficulty some larger broker firms will be facing where 25 brokers may expect payment the next month but the commission simply isn’t there.
Generally, if an insurer pays the premium the month after the policy goes on risk, Shaw finds he’s waiting 4-6 weeks for commission. But even then, he has endured 3-4 month wait times just for the policy to go on risk, he said.
