[GRTV] FAP or Fiction?

Whoa. The amount a dealer group receives is not '30% of the annual premium: as stated'. Far from it.

Considering override (in question from one supplier) is not paid on all products, not paid on GST, not paid policy fees, not paid on per mille loadings, and subject to persistency, then the real figure is 15 - 18% of the actual premium.

Suggestions that standalone Advisers will be able to fund everything themselves based on these figures is questionable.

Can we please have appropriate and objective journalism free from sponsor conflicts and personal bias?

• In the space of only two months two insurers are now paying upfront commission in excess of 250% of API, and another at 230%. An upfront commission war has occurred! Why have you not reported that the matrix changes and override introduced by Partners Life has the effect of paying a single adviser FAP a Gross Upfront Commission of 256% API (max)? Could the FMA and respective industry bodies please comment on why this is ok in light of the incentive reforms currently being proposed under COFI and despite all of the agitating and table thumping from Everett about inappropriate incentives and problems with ‘high’ upfront commission .
• Would the RB also like to comment about this – perhaps also to the capital strain and solvency impacts of commissions paid at this level?
• The anti-dealer sentiment expressed in your ‘journalism’ is frankly revealing of your own bias. Dealer Groups originated for aggregation that actually allowed all advisers appropriate access to all providers free of the volume targets that respective suppliers traditionally required for an adviser to achieve ‘best’ terms. Somehow, and perhaps because of the behaviour of a small few, you are treating them as the antagonist responsible for many industry ills when in fact their foundational reason for being was removing the barriers to access and conflicts inherent in traditional supplier driven agreements. Would seem logical that will continue to be a core reason for their ongoing existence and future success – the good ones anyway.
• Should any adviser business make decisions to form their own FAP on the basis of a financial incentive? Do changes to disclosure, conflicts of interest and loss of independence not concern them? Probably not, though disclosure regs and full licencing guidance is still pending of course. Tread very carefully.
• The former Dealer Group CEO being interviewed spent her tenure at Newpark advocating that no one should join a Dealer Group FAP, in fact proposed that Dealer Groups would not qualify to be FAPs under legislation. See Newparks blatant and frankly pathetic flip flop on that communicated to members just last week.
• Shouldn’t you provide a disclaimer that neither you nor most of your interviewees are experts in FS Legislation. The views or opinions expressed in your interviews are that and only that. All future FAPs should be seeking appropriate legal and specialist advice as the implications for them and their future business are potentially serious for getting this wrong.
• Contagion? Would love to hear from an actual expert on how an FAP could manage this if it is indeed a risk. An oversight structure with Authorised Body FAPs may just be how that was solved for already? Are advisers signing agreements now not at all ‘fit for purpose’ for managing their obligations as a future FAP – yes they are.
• Group overrides have varied from 6% of API up to 30% over the last several years (At one point Tower and ING were paying 40%). The % paid to groups exists as a mechanism of aggregation. It is a demonstrable lack of understanding of how the industry works to say that a dealer group gets 30% of an advisers API. All suppliers vary in terms of the calculation and specifics of the terms and just like with commission can be paid net of GST, policy fees, lapses etc. Please be sure of the accuracy of the statements before publishing them in the public domain.

No matter how we seem to be trying to sugar coat these override payments now i.e. Partners Life calling them a FAPO these payments are still bonus commission been paid on the production of new business. This type of commission in the financial services industry has been outlawed as it has been deemed to promote potentially poor outcomes for consumers. It would be a very brave person to think then that FAPO payments to either dealer group FAPs or advisers operating as their own FAP will continue indefinitely.

Partners Life probably know the override payments are destined to be scrapped but meantime they can be seen by the FMA to be attempting to change things for the better. Partners Life’s stance around the override payments which are currently only paid to dealer groups reflects theirs and the FMA’s belief that commission should only be paid now to the person giving advice to the client. Dealer groups have and never will give advice to an adviser’s client.

Any adviser thinking about working under a dealer group FAP needs to think about the consequences of what will happen to them and their business once the override payments are abolished. If you join a dealer group FAP eventually that group will have to place large levies on its members or take a good slice of their upfront mortgage or insurance commission. If the dealer groups can only function based on the override payments that they are currently receiving from insurers their business model was never going be sustainable.

Do yourself a favour guys. Look to the future. Become your own FAP. It’s not as hard as the dealer groups want you to think it is.