Brokers’ commissions under threat

Contractual clauses in major insurance companies’ contracts mean they could potentially stop paying brokers commission for insurance business once they have retired.

Paymentshield has recently been criticised for stopping its renewal commission to brokers who are no longer Financial Services Authority regulated to sell mortgage payment protection insurance.

However, insurers such as Legal & General, Norwich Union and Friends Provident have stated in their contracts for life insurance that they could cancel commission payments to intermediaries if they cease to be regulated, which has caused alarm among some brokers.

One clause in L&G’s contract states: “If the intermediary ceases to trade, any commission paid on indemnity terms which remains unearned at the date of cessation of trade shall be a debt owing to L&G and must be reimbursed in full to L&G.”

A spokeswoman for L&G has confirmed that this is the case and that brokers who retire will need to repay any negative balance commission that may arise.

NU and Friends Provident have also confirmed that if a broker ceases to be regulated, including if they retire, they will no longer be paid commission for polices they sold while regulated.

Danny Lovey, mortgage adviser at The Mortgage Practitioner, says the terms in these contracts are a time bomb waiting to happen.

He says: “If this was ever enforced it could bankrupt retired advisers in some cases with clawback of commission already paid.”

Lovey is calling for the four-year earning period for brokers on commission once the policy is sold to be cut to two years, which could mean lower commissions for brokers, but the safety that they will get paid the commission they are owed.