Govt confirms: Commission in the gun

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High upfront commissions and overseas trips are in the spotlight as the government works to overhaul financial services sales incentives.

Thursday, January 31st 2019, 6:00AM 1 Comment

Darren Gannon

On Tuesday, Commerce Minister Kris Faafoi and Finance Minister Grant Robertson revealed Cabinet had agreed to get rid of sales incentives that were driving poor customer outcomes in banking and insurance.

Advice on that is being fast-tracked and consultation is expected in May.

It follows a damning report on the industry, which said insurers were putting sales ahead of customers and did not have enough oversight of advisers.

A spokeswoman for Faafoi said officials would provide a range of options to support better customer outcomes.

“Some business practices may need to change to ensure the interests of the consumer are a priority.”

She said it was overseas trips and high upfront commissions that were of most concern.

That could be a concern for an industry where there are already suggestions that advisers may leave if they are near the end of their careers rather than undergo the process of transitioning to entity licensing under the Financial Services Legislation Amendment Bill (FSLAB).

She said it would not affect the passage of the FSLAB because the work streams were proceeding in parallel.

Fred Dodds, former chief executive of the IFA, said regulators were probably looking at Australia, where advisers were "surviving" on 70% upfront and 30% trail.

"That's what the regulator is looking at and probably saying if they can do it, why can't we?"

He said advisers were "guiltless" as insurers competing for market share offered increasing levels of commission.

"If you think back to the days of getting an agency you were paid an initial commission and a volume bonus based on how much business you write. Slowly that was rolled into upfronts and then aggregators came along and said 'we'll give you the top rate for everything'. So where a life company would have paid upfront and a bit for someone who wrote $5,000 in premiums a year now they pay the whole lot and the aggregator gets the override. The adviser had nothing to do with it."

He said it was important for the whole sector that the life insurance industry was strong. "They're the bottom of the pyramid."

Darren Gannon, founder of Newpark, said the focus on commission was misguided.

“Commission rates have not gone up over the years but the way they pay it now is different.”

He said, for example, that Partners Life would pay 100%  upfront and then pay a volume bonus to offset business costs, which would increase as the size of the business grew.

“When I first started, we were paid 120% but everything was paid for… the difference between turnover and commission is a significant point. All providers can do is lower their commission and pay for other things. It’s very, very hard to compare commission between one country and another and even one era and another.”

But he said he supported the government move to stop overseas trips. Conferences and events were needed, he said, but there was no reason they could not be held in New Zealand.

Partners Life chief executive Naomi Ballantyne said commission had to be set at a level that would bring new advisers into the industry and convince those already in to stay.

Tags: Commission FSLAB Kris Faafoi

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