Survey finds consumer support for life advice commissions
A survey out of Australia shows that consumers prefer life insurance advisers to be paid by commission.
Thursday, February 17th 2011, 3:51PM 
10 Comments
Just under 80% of consumers believes commissions are a fair way for financial advisers to be remunerated and 57% would be less likely to seek life cover if upfront fees were compulsory.
The findings are from a research study commissioned by Zurich which asked 300 consumers to consider questions on how advisers are paid for providing life insurance advice and services.
When given a choice between paying adviser commissions via their insurance premiums or paying an additional, upfront fee, 79% of respondents said commissions were fair, with the remaining 21% disagreeing.
The survey also found a majority opposed compulsory fees for advice.
"Whilst one third of those surveyed said that moving to an upfront fee-only model would make them more likely to seek life insurance advice, a disturbing 57% said they would be less likely to seek risk advice if they were forced to pay an upfront fee," said Zurich Life Australia general manager Colin Morgan.
The insurer said these figures suggest the overall risk market would reduce by 24% if risk commissions were banned.
Morgan said parties purporting to represent consumer interests have failed to engage with those consumers and that, according to their own research, "consumers are supportive of the concept of commissions in risk provided there is transparency about them."
The report also found the maximum fee a consumer would be willing to pay for risk advice would be A$605, a figure Morgan said is well below the real cost of advisers providing that advice.
"Legislating the way - and effectively the amount - advisers can be remunerated for the advice they provide is contrary to the concept of providing consumers more choice," he said.
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Comments from our readers
And Bazza - I totally agree.
bought or not? If a fee is charged regardless of the outcome then the fee system would be wide open to abuse! would it not? Would the fee be based on time spent with the prospect plus time spent on preparing the recommendation? Also would a fee instead of commission lower the cost of the insurance product to the client? and if not why not?
Geoff raises some good questions, if you vary the commission on most life companies quote software to 0% the premium discount is around 20%. This is where the pinnacles and other such direct marketers get their budget from for direct marketing and websites and so forth, by not having agents re-purposing much of that 20%.
In other words, what value does the fee model bring? The non-advice model (direct) adds no useful value in terms of service and advice etc, and isn't really cheaper, so customers employing an adviser are effectively getting our advice at very little or no cost. Why mess with that?
With the right money, and the right questions to the right group of people, I am sure that Dracula can demonstrate via a survey that his services are popular and valued.
As for regulation, it happens that I have chosen to go down the AFA path as have all the advisers in my practice, so the big stick is there for us as well. I believe we shall continue to be paid by commission because that is the only way that we can be certain that the public receive advice on their risk needs. Even then there will always be a percentage of the population who will avoid being insured at all. If we moved to a fee based insurance model I suspect the life insurance industry as we know it in this country would die, certainly we would have an even greater proportion of the population than now with no insurance at all to protect their loved ones. Is that what we want? Do we really want to create an even greater dependency on the state in time of trouble or do we want our people to stand on their own feet and look after themselves and their families with the certainty that a properly designed package of insurance products brings.
Get off your high horse "High Road" and smell the coffee.
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