Cut your commission to compete, says Sovereign
Sovereign has defended the cheaper premiums available on its products via The Warehouse website, saying advisers can compete by lowering their commission levels.
Wednesday, January 25th 2012, 6:00AM 26 Comments
by Benn Bathgate
While Sovereign sets the standard commission rates, the company said advisers are able to reduce their upfront commission percentage to in turn provide a reduction in premium to the customer.
Sovereign said this was known as ‘variable commission' and that advisers can select this option at the point of sale via the Sovereign quote software.
One adviser - who wished to remain anonymous - compared The Warehouse's premiums with ones in Sovereign's adviser software.
In each of the six cases (see below), the same level of cover was cheaper via The Warehouse.
"As a broker this greatly concerned me that we have always been assured quite categorically by Sovereign throughout the years that whatever distribution model they happen to choose, they will charge one rate and one rate only," they said.
The adviser also examined how far they would have to reduce their commission to compete with The Warehouse prices by comparing figures they inputted into the Warehouse website with Sovereign's quote software for brokers.
"On some of them you had to rebate everything, it was up to $250,000 [of life cover] you have to repay everything in order to match The Warehouse premium."
The adviser said it wasn't until reaching life cover of $500,000 that "you only have to rebate 60% [of your commission)]."
Sovereign adviser general distribution manager David Haak said the differing commission was down to The Warehouse.
"They [advisers'] shouldn't be worried because at the end of the day the actual model we use is the same and the underlying rates are the same as we use in the adviser market, it's just the commission that's changed."
He also said if advisers wanted to compete with the lower Warehouse premiums, they can "compete by cutting [their] commission to the same levels as The Warehouse."
Sum assured |
Premium |
Premium Warehouse |
Difference |
$100,000 | $43.95 | $35.63 | $8.32 |
$200,000 | $78.52 | $64.72 | $13.80 |
$250,000 | $94.36 | $78.25 | $16.11 |
$300,000 | $109.24 | $91.29 | $17.95 |
$400,000 | $133.43 | $113.85 | $19.58 |
$500,000 | $152.44 | $133.41 |
$19.03 |
Table supplied by adviser. Data from Warehouse website and Sovereign's adviser software tool. Premiums monthly.
Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz
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Comments from our readers
Also had a networking contact (not my client) tell me this morning, that he was "shopped" this week by a certain bank (starts with A ends with B) who had full details of his insurance cover with Sovereign (which they never put in place) and which was never volunteered to them or any authority letters signed.
Just a bank person doing some telemarketing, but I wonder what they had on the computor screen in front of them?
"Makes you wonder don't it?"
The advisers that should be concerned would be the Sovereign QFE's as they have to direct 85% of all their sales to Sovereign to obtain QFE status with Sovereign.
So, the message to advisers is: Watch who you place the business with - they might look good today, but if the ultimate owner is not insurance-focused, your relationship may well be the casualty in the future!
So for me, this is not an issue as these clients would simply change whenever they find a cheaper price.
Banks and many other retail outlets like The Warehouse have strong brand capital, a captive audience and now it seems discount pricing to boot!
That said, a ‘genuine’ financial adviser has something to offer that banks and other retail outlets will likely never have, and that’s a sincere interest in their clients welfare (beyond the next KPI target), and first class financial advice.
However, if, as an ‘adviser’ your service offering is little more than that of the banking and retail sectors i.e. you supply good insurance product but with minimal financial advice, and if these sectors can offer the same for less, then it stands to reason that their insurance offering makes better economic sense for the insurance sector and consumer alike.
If your business is not ‘advice’ first and ‘product’ second, the answer is to take your eyes off what your competitors are doing and put them on what you’re doing, otherwise sooner or later you’re likely to become a casualty of a changing world. Tool up, get your priorities right and compete!
17 years ago I was 100% commission based. Now it forms a tiny part of my income - fees and client satisfaction are the future. The future is here and now.
I don't think you have anything to worry about. Nothing replaces having a quality broker to arrange your insurances.
Still can't fathom how a QFE adviser (Sovereign, AMP etc) has that conversation with their clients? "Well there's an insurer available in this instance with a better product etc but I have to place you with Sovereign to keep my QFE status" Clearly it doesn't even come up for discussion does it?
It is up to the client to search out the better product. As long as the QFE adviser has told the client of the restricted product line they can offer, they have fulfilled their obligation to that client.
If the client decides to buy the product there is no problem.
I guarantee you now QFE advisers will not be the ones writing all the new business in the future. Younger clients will simply not tolerate this "one flavour of ice cream" approach that some insurers (Sovereign & AMP) seem to think they can still shovel. Independent advisers who can give their clients access to "multiple" insurers and products will flourish whilst those that are content to sell just one insurer’s product will wonder why they are not busy. Isn’t this a bit of a ‘no brainer” business wise for advisers selling insurance??
P.S. To quote the legislation on this subject is all well and good but I’d like to see a client’s response to this attitude.
I expect that they are very aware of the need to have innovative and market leading products in order to survive in the future.
Advisers who choose to operate in the QFE space will still be able to offer top end products as long as the product providers keep up with market trends.
In my experience the number of "Independent Advisers" who actually use the "multiple" insurers they have access to is not great. Most will have a lead provider with 3 or 4 others picking up the balance of their new business.
With regards to the advice process, this
does not necessary extend to telling the
client there is a better product available elsewhere. It requires you to give the client the best product you have in your range of products to solve their need. If you do not have a product that provides a solution to their needs then it is up to you to advise the client accordingly.
Having recently witnessed AMP's stance when it comes to giving client's "choice" where they go for their cover I am sorry to say it's business as usual at AMP. No choice.
Sovereign I would concede as been innovative but AMP? Sorry, no. Look at who wrote all the new business last year and where did AMP rank in the scheme of things? There is a good reason why AMP are well down the list and most advisers recognised this when making a recommendation for a provider.
I am sure that the next 2-3 years will throw up some very interesting case studies that will keep the regulators busy.
Ron as you point out the regulators could potentially have a field day with cases whereby a client was not told at application time that there was a superior product available to them that their adviser could not offer them. An example of this would be the recommendation of a health insurer that didn’t offer non Pharmac drug cover. Client then suffers a serious health issue 2 years in the future requiring expensive non Pharmac drugs and their insurer won’t help pay for the treatment. How could an adviser live with themselves knowing that they could have seen their client with an insurer that would pay for this treatment? I very much doubt that the client will see the adviser’s ignorance of what other insurers were offering as an excuse.
If the cost of distribution is less costly for them, let them go for it. I think there are far to many advisers out there more worried about protecting their patch rather than give good advice.
The client's who buy online through the warehouse are most likely not clients who would buy through a broker anyway.
We can offer our client's advice when purchasing and support when claiming. Both are benefits that the Warehouse can't compete with.
Studies in Australia recently showed that people who purchase online have significantly less cover than those who use an adviser.
If in the future I start getting a number of my prospects buying on line rather than taking my advice I may start to be concerned. Until then the show goes on.
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