If your adviser quotes their fees in percentages, ask them to convert it to dollars to get a better feel for what you’re paying.
Most insurance advisers work on commission - they receive a payment from the insurance provider as a percentage of your premium. If you have complex insurance requirements, they may also charge a fee for analysing your needs and producing a plan for you.
Only some advisers have to tell you how they’re paid. If they don’t tell you, ask. It’s important to be sure your adviser is looking after your best interest and not influenced by a commission payment or reward.
Even if you buy your insurance online (for example, through a comparison website) the pricing will typically include a commission. Some insurance companies do offer a commission-free premium if you deal with them directly.
If your adviser is comparing life insurance products for you, get them to do a 10-year forward pricing projection. A policy that is affordable now could become expensive if premiums increase significantly over time.
Ask if there is a charge for cancelling your policy within a specified period. Some insurers have a ‘clawback’ period which means if you do cancel within this time (usually two years) your adviser must repay a portion of the upfront commission. Some advisers pass this charge on to their customer.
Like insurance providers, most mortgage advisers also work on commission. They usually receive a payment from the lender as a percentage of the amount loaned and may also receive ongoing commission. This is paid by the mortgage provider annually for the period of your loan. Some advisers may also charge a fee, so it’s best to check this when you meet.
If you are dealing with an Authorised Financial Adviser (AFA), they are legally required to tell you about any fee and commission details.
A Registered Financial Adviser (RFA) is not legally required to disclose commission and fees but you are entitled to ask and be told.
A QFE adviser (for example bank staff) doesn’t usually receive a commission but will be rewarded by some form of a bonus. Again, you’re entitled to ask. See types of advice which explain more about these advisers and the services they provide.
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