Chatter about churn and commission

Given the latest chatter about commission, I thought dusting this off was appropriate now.

Monday, March 4th 2019, 9:39AM

by Jon-Paul Hale

Jon-Paul Hale

I wrote most of this originally sometime before Christmas, and other things got in the way of pushing it out at the time.

At the time there was a lot of chatter about churn and commission. Moreover, the only people talking commission were you lot.

Which was the point of my article last week. It got the reaction I was looking for. There isn't a more effective way to approach this that doesn't harm long term client outcomes.

If there was, the insurers would have justified it a long time ago, notably if it improved their bottom line.

Also, thanks to Murray for pointing out it was the IFSO and not the FMA on the censure on service piece. I agreed with Murray at the time that the decision wasn't the right one. My point in raising it was we already have the perception that trail = service and those in 'power' are already applying it in this way.

Right or wrong, that's what we are working with. Moreover, the current laws give advisers no right to reply when regulators, and DRS schemes, apply the rules in the way they feel, rather than how it has been written.

The providers have been and still are pretty quiet on it, except Naomi’s comments in support of the present commission approach enabling advice to those without the financial resources or inclination to pay for advice.

Flicking back through old copies of the Asset Mag, I saw a number of articles on commission with Naomi saying much the same thing. Pretty consistently the only one from my flicking through and recall in my time in the industry.

Though happy to be corrected with my middle age brain starting to forget thing ;)

Until the recent Reserve Bank report and the reports across the Tasman, it's been pretty quiet everywhere else on the subject of commission.

I have sat with; the FMA, MBIE, The Code Working Group, Providers, and the Minister in Charge, and they are all unanimous in their comments. "We’re not looking at commission; everyone needs to be paid."

It’s also been offered that having a salary and making sales to keep your job is no less an incentive to do the wrong thing than commission is as has also since been proven with the FMA's QFE report.

Yes, we have the Aussies trying to prove a point that commission is bad, they have capped it, and they are looking at removing it. Add to this none of the changes Aussie have implemented around commission in the last 20 years there have had any impact on the behaviours. Conduct is the issue, not commission.

The Aussie experience is going to show in the fullness of time, removing commission on insurance products will remove access to good financial advice for a significant portion of the population.

Our regulators understand that and do not want that. They want the opposite, more people to access and engage in advice.

Frankly, it’s a great time to be an insurance adviser!

So no, commissions are probably not changing in a hurry; even the Aussies are quietly backing away from the banning of mortgage broker commissions. So it really is drop the discussion on commission and focus on the things that need your focus.

It is all well and good to sit in cushy offices, and ivory towers, and take the academic approach.

The reality for about 50% of the population, if not more, if they have to pay for advice, they will pass on advice and do nothing. Just look at the state of the estate management area, 40% of people dying don’t have a will.

The cost of a simple will is $50-100 depending on where you go. If clients won’t pay for this simple tool to save them money and significant stress in the long term, good luck getting clients to pay your fees for advice.

Because they will need to be less than $100 per person to get any traction, moreover, you can't run a business on that.

The other one that the regulators have been quiet about is churn. There has not been a significant discovery of churn in the industry, especially in the adviser space — more of my opinion on this with my previous articles. The QFE’s however, have been found to be ten times more harmful on the replacement of business than insurance advisers. Yes, there are a few ratbags, but on the whole churn issue is a non-issue.

The real issue is the conduct around replacement and the quality of advice associated with that replacement. Including the conflicts of remuneration. All remuneration, not just commission.

It’s dead easy to advise on client need for cover when they don’t have cover. It’s much harder to do this when there are existing policies in place.

For example, at one point I had a stat at Sovereign, they had 1500 different products with 15,000 different variations and 45,000 different policy wordings. And that was for about 35% of the inforce market at the time. It’s changed since then, as in got worse!

Yes, new business is easy, replacement business takes significant knowledge and skill.

We need to move on from the red herring commission discussion and tackle the real issues. My comments last week about regulating commission, it would put a 20 plus year speculation on change to bed, and we can then focus on conduct and culture.

We know what crap advice is, what is good advice?

Tags: Churn Commission Jon-Paul Hale Opinion