Secondary

Commission Impact on Client Returns

Rob Rusconi shocked the industry in 2004 when he did a presentation to the actuarial society on the impact of expenses on retirement provision of individuals. In the ensuing investigation by the national treasury, it came to light that commission only made up about a third of these expenses, in contrast to the figures claimed by an industry body at the time.

From last month, we publish two sets of rates: one reflecting commission at 3%, the other at 1,5%, excluding VAT. This came about as a result of one of the product providers deciding that they would only produce quotes showing the lower rate of commission. The reason given was that they thought it fit to do so as part of their treating customers fairly initiative. I am still trying to work out how, reducing the intermediary’s commission, can be viewed as a fairer deal for the client by the provider. Rest assured that, if I manage to do so, I will let you know.

If one takes the average return of the rates published last week, then a client who invested R1 million in a secured investment for 5 years would receive R25 106 more at the reduced commission rate.

A client who opted for an annuity income while securing his capital would receive approximately R240 per month more, at the lower commission rate. This amounts to an additional R14 400 over the term of the investment.

This may be a sacrifice worth considering, given the on-going low interest rate environment. As it is, many advisors are quite happy to settle for even less as part of their client care commitment.

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