It is beginning to dawn on many networks, packagers and mortgage intermediaries that they need to deal more efficiently with commission payments. Those stuck in the initial commission world are safe and sound with low volume, high value cases – as long as that’s where they want to stay.
But how long will that world last when the Financial Services Authority seems set on removing indemnity payments in the life and pensions industry and moving the market towards a fee-based structure? This may present a challenge for brokers if the mortgage industry moves to a fee basis or if lenders start to pay trail commission.
Independent financial advisers and their networks that are moving to a ‘fee plus trail’ model for insurance and investments will see their consultants and advisers need to share in the trail payments. They need to manage and account for these payments.
Small firms are often more at ease doing this manually. Yet as time goes on, the vol” The biggest stumbling block for intermediaries, networks and distributors is the quality of existing back-office data”ume of trail payments will grow, rising by the number of investments, life assurance and protection policies and, maybe in the future, mortgages sold in the previous month. Networks have coped well so far but the requirement to split insurance commissions from the outset has driven most of them to use technology to deal with the issue.
Brokers, networks and packagers will not be immune to the issues caused by a massive and exponential growth in the volume of commission payments. For networks, many of which are relatively new, the time will come when the real volume kicks in – with payments for each policy sold every month increasing every month.
Intermediaries, networks and distributors have to take data on commissions from their lender panel, life companies and protection providers which send out data in different formats. One technology solution is delivered by CBoxx, which specialises in assisting IFAs reconcile commissions. It is easier to reconcile commission payments in the life and pensions industry as it has a data standard maintained by Origo for commission data and this is widely used.
CBoxx’s experience indicates the biggest stumbling block for intermediaries, networks and distributors is the quality of existing back-office data. Producing an electronic version of the commission statement from lenders is one thing – being able to match individual payments to individual case records is another. Unless there is good quality data to match against, the amount of work could increase rather than reduce.
Strategic thinkers should consider how they can establish standards for new business commission tracking so that intermediaries can take commission data from all their lenders using the same XML standards. This would offer benefits apart from time saved by not having to chase providers to track progress on new business commission. XML standards could also help distributors pre-populate their own databases.
Frank Eve is managing director of Frank Eve Consulting