It’s no secret that many businesses use termination and exit fees to lock in their customers. While these fees may seem nominal, they can add up over time and make it very difficult for customers to break free from a contract—even if they’re unhappy with the service they’re receiving. In this blog post, we’ll look at how financial termination and exit fees work and why they’re often used by advisers to keep their clients locked in.

What are financial termination and exit fees?

Financial termination and exit fees are charges assessed to customers who cancel their contract before the end of the term. These fees can be a flat rate or a percentage of the remaining balance, and they’re typically assessed by product providers in order to recoup the costs of early cancellation and to pay the adviser upfront commissions.

Why do advisers use financial termination and exit fees?

There are a few reasons why advisers might choose to use financial termination and exit fees. First, these fees can act as a disincentive for customers to cancel their service early. Second, they can help advisers recoup the costs associated with early cancellation (e.g., advertising costs, commissions, etc.). And lastly, they can help advisers offset the revenue lost from early cancellation. Alternatively, in some cases, exit fees could be seen as cost-effective as the client is invested 100% at inception meaning more money is invested from the onset.

Who determines these fee structures?

Termination fees are setup up by the product provider, not the adviser. Some providers have fixed commission structures whereas others allow advisers to choose the remuneration available to best suit the clients as applicable. Some countries have laws limiting when and how these fees can be assessed. So, if you live in one of these countries, be sure to check your local regulations before signing any contracts that include a financial termination or exit fee.

If you’re considering signing up for a service that includes a financial termination or exit fee, it’s important to weigh the pros and cons carefully. On one hand, you could be locked into a contract that you’re unhappy with; on the other hand, you might be able to take advantage of lower rates by signing a longer-term contract. As always, it’s important to read the fine print carefully before signing any contract! Thanks for reading.