Insurance buyers in the coming months may get two options for paying their insurance agent. One, pay the agent a fee as followed by mutual funds. And two, continue paying commissions. These options would be available till the insurance industry goes no load by 2011.
The suggestions are being deliberated by the High Level Committee on Investor Awareness and Protection (CIAP) which has come out with its report on having common minimum standards for all intermediaries and having a no load structure on retail products by April 2011 (18 months from now).
“Till the transition period (the time taken for the recommendations of the report to be effective), let the insurance industry be allowed to continue with the commission and the fee based model,” said D Swarup, chairman, CIAP and Pension Fund Regulatory and Development Authority. In some cases, insurance agents are paid upto 40 per cent commission in the first year of the policy. “Let consumers decide if they want a commission model or a fee-based model. The level of charges will be through a bilateral discussion between the consumer and advisor. In the United States, both the fee and the commission model work,” he said.
The transition period could be a “few months or even two years”, Swarup said. “We are still consulting all stakeholders and expect to submit the report by the end of this month. The final call has to be taken by the individual regulators for implementing the recommendations.”
Swarup also clarified that Financial Well Being Board of India (FINWEB), the body where all financial advisors will have to be registered will be a nodal agency for setting standards for intermediaries and spreading financial literacy and will not be a regulator for financial advisors.