This whole public debate about commissions is so misguided it’s enough to drive one mad.

For the record, I don’t mind if advisers earn commissions as long as it is disclosed and customers have choice.

Also to get things clear, there are different remuneration structures for the various disciplines of advice, namely; investments, KiwiSaver, mortgages and life insurance.

I think the debate is only about investment products, however it seems that some commentary has included all financial products and services.

With life insurance I tend to agree that remunerating risk advisers on a commission basis is probably the default setting. If you take the argument insurance is sold, not bought, then a commission basis is fine; just disclose it.

Mortgages are similar. There is a slow trend to an advice model here and that is encouraging to see.

Investments are where things get interesting.

This whole idea about banning commissions seems to have come about due to the collapse of various finance companies and perceptions that advisers poured clients into finance companies because of the commission they were paid.

There is a slight element of truth to this. However the big over-riding fact which is being ignored in the debate is this:

The large majority of the money which went into finance companies that collapsed, went in directly from investors. This money did not get there through advisers.

By my reckoning, around a third of the money in collapsed finance companies came through advisers, yet they are getting 100% of the blame.

Banning commissions isn’t the answer. It’s investor education, as I argued here. Also it’s up to the product manufacturers to change the way they reward advisers and the regulators to make sure dodgy operators are closed down.

Yesterday I sat in on an AMP briefing about what it is doing with its advisory business. One of the interesting things was when CEO Jack Regan talked about the attributes needed to be a successful adviser. I won’t list them all, but what is worth noting is that the whole package was wrapped up by acknowledging advisers were sales people; the term used was “professional salesmen”.

Many sales people are remunerated on a commission, or partial commission basis, so why can’t advisers?

Another ignored point which bothers me is around share brokers. Hello, these people have been commission-driven salesmen since Adam was a cowboy. Do they get the same opprobrium as financial advisers?

Nope.

I bet if you looked at many of their portfolios over the past couple of years you will see some significant losses.

Apparently that is OK.

Very strange.

Yesterday we held the ASSET Magazine Insurance roundtable. This is where we get together a group of people from various parts of the life industry to discuss current issues.

I wasn’t going to discuss this until a little closer to when we publish the Round Table discussion in ASSET.

However an item on TV3’s Campbell Live last night picked up on one of the issues discussed.

The issue is simple – the public perception of life insurance and risk advisers.

On Campbell Live there was a piece getting stuck into Sovereign for not paying a claim made by a guy who was dying of prostate cancer.

It seems the key issue is the man had failed to disclose a number of important conditions when he filled out the application form.

What was fascinating is that although Sovereign’s clinical director John Mayhew tried to put the case, it was impossible to make any headway as Campbell clearly didn’t understand how life insurance works. Rather he played on a strong emotional line: How can you deny paying a claim to a man who  is dying?

This isn’t the only example of bad press for life insurance. The whole financial sector took a hiding in the Sunday Star Times this week when it published results of a survey. The key point, and it is little surprise in this market, is that there was little trust of the either advisers or the firms who provide investment and insurance products.

Perhaps most galling was a comment no one trusted insurance advisers anyway so it was no surprise there wasn’t a positive public perception.

When things go wrong it makes headlines. It’s really easy for the media to be critical of life insurance.

Also when things go wrong there are plenty of willing outlets for the story where it is current affairs shows like Campbell Live or Fair Go.

The point is that the media totally ignore the great work life insurance plays and the thousands of claims they pay out each year worth many millions of dollars.

What the life insurance industry needs to do is get out and sell its good news story. It has a great story to tell. It has thousands of people who have benefited from having life insurance.

It’s time the industry put aside its differences and works together to get the facts out there.

The sooner it happens the better it will be for everybody (except the uninitiated who want to tell sensationist stories).

The eagerly awaited announcement of who is on the “Code Committee” has landed. The announcement of the 10 names this week is bound to generate some debate and I suspect quite a few grumblings.

The future of the financial advisory industry rests in their hands to some degree. They are the 10 who will write the rules around regulation.

I know most of the people and have nothing personally against any of them, but I do have to scratch my head over the make up of the committee.

The main point, as has been made in some comments to this story, is that there appears to be no one with any experience on the life insurance side of the industry. Likewise the mortgage broking community seems to have been ignored too.

A second point which has been raised is that the committee has a strong feeling of lawyers and managers rather than practitioners.

Is this committee really representative of the advisory industry?

I’ve heard many of these people speak before and also discussed issues with some of them individually. Unfortunately in some cases there is a lack of understanding of the advisory world and even some hostility towards it.

I understand many, many people put their names forward, and some of those turned down were, in my view, excellent candidates.

There is no point pre-judging what the committee comes up with, but I, like many others, hope that they are workable and sensible rules which ensure we have a robust, professional advisory industry.

What do you think of the make-up? Let us know by commenting below.

Naomi Ballantyne’s decision to leave her “baby” ING Life is a significant loss for the life insurance industry…but it’s also not a big surprise.

A story started circulating late last year that she may move on. Also it seems when there are changes to the leadership of a group significant personnel changes follow.

We have seen this with ING since Helen Troup took over the reigns. She is in the process of making a new ING – which considering the current circumstances, isn’t a bad thing.

It’s a little irrelevant whether Naomi’s departure and Troup’s arrival are related. The purpose of this post is to acknowledge what Naomi has done and also give readers a chance to leave their messages.

No one would disagree with the proposition that Naomi has been a big figure in the life insurance industry, through her roles at Sovereign and her decision to leave and establish what was called Sovereign Mark II. That Mark II was Club Life and evolved into ING Life.

ING Life has been doing a great job in the life insurance market and certainly must be highly profitable for the parent company.

Naomi has often been outspoken and some of her views have created controversy. It’s important that the industry has robust discussions around issues and no doubt Naomi’s departure will be a big loss.

To leave a comment or your thoughts on her departure use the comments box below.

Out in adviser land there are plenty of changes quietly going. I’m not talking about regulation here. Rather there seems to be plenty of movement going on amongst the different disciplines of advice.

What I refer to here are mortgage broking, insurance and investment advice.
There is no doubt that the former and latter are really struggling.

With such a massive slowdown in the housing market the easy deals for mortgage brokers have disappeared. The staple diet of brokering a deal and collecting commissions is disappearing. (Partly because there are far fewer house sales than a year ago, but also because banks have slashed commissions).

Now brokers have to look to new income streams and become more advice orientated.
There are a number of options brokers can look to for new income and these include advising on home equity release, commercial lending or life insurance.

The HER market has slowed, but has a good future. The commercial business is quite specialised, but still a healthy market.

What is interesting is that a great debate is developing as to whether mortgage brokers can become risk advisers. I give credit to some of the life companies, such as AIG and Sovereign, for trying to help brokers expand their businesses.

On the other hand there are plenty of voices which suggest it will be very hard for brokers to make the shift successfully.

This is something which we will watch closely.

Added to that though is news that a number of investment advisers, who have experience with life insurance, are moving back to the risk fold.

There are stories that risk advisers who sold Blue Chip are now back in the life insurance market. (This comes from a life company itself).

It’s all great news for life companies as they may get to write lots of new business. Also it may go some way towards this much-talked about problem of under-insurance.