Servicing adviser should get trail
Forget about upfront commissions, one adviser says churn should be tackled by allowing trail commissions to be paid to the servicing adviser – not simply the person who sold the product in the first place.
Thursday, February 21st 2019, 6:00AM 
2 Comments
The Government has revealed its plans to crackdown on incentives that create poor customer outcomes in financial services, including high upfront commissions and overseas trips for insurance advisers.
It follows a critical report into the sector by the Financial Markets Authority and Reserve Bank.
But adviser Colin Just said while advisers were being encouraged to churn clients, it was not simply because they were paid a big commission for issuing new policies.
He advisers were incentivised to move any new client who came to them already holding an insurance policy.
If an insurance adviser wants to take over a client who has been provided with a policy provided by another adviser, they can do so – but they will not be paid for it. The adviser who initially placed the client in the product continues to receive the trail commission so long as the client holds the policy.
Just said, on the half-a-dozen times he had approached a client’s existing adviser to discuss buying that person’s business, he had been denied.
“They get paid, I do the work.”
He said he would usually do it anyway because often clients had come to him for a mortgage and wanted him to handle everything, but the client felt it was unfair, too.
“The only way I get paid is if I take them to a new insurance company. The companies create their own churn.”
Shifting clients created the potential for people to be caught by standdown periods or pre-existing conditions.
Just said it would be better to have a model such as with mortgage broking, where if he did not conduct the client’s review with Westpac when their fixed term finished, the bank would take it over and trail would stop.
“if you’re doing the work you should get paid. If you don’t, you shouldn’t.”
In the recent FMA/Reserve Bank report on life insurers, the regulators said advisers should be incentivised to give ongoing service and advice to customers.
FMA spokesman Andrew Park said: "Our primary concern raised in the recent insurance report is around commission structures and incentives that are not aligned with good customer outcomes, those incentives that prioritise sales volumes rather than the customer’s interests. We have included the reference to those points below at the bottom. MBIE are probably best placed to respond to questions about regulating and policy for commissions."
He said it was one area that insurers would have to consider when they respond to regulatory feedback and the tasks they were required carry out by the end of June.
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Comments from our readers
Another move could be that if a client signs a 'change of adviser' form then this automatically requires a sale of that client to the new adviser at, say, 3X renewal. Automatic, no if and buts.
If the policy is then re-written it is a financial loss to the new adviser, not the old adviser - offset of course by any new initial commission on the new contract.
Might make some think twice before cancelling a perfectly good contract, especially if the new contract can only be written on spread commission terms.
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