Opinion: Could commission disappear?

Tell me, are any of these crap arguments going on at the moment getting more people insured? Are more claims being paid? If it ain't broke why does it need fixing for godsake.

Commission is for salesmen, fees are for professionals! As long as NZ advisers want to earn the respect of their peers and clients they need to move away from being salesmen. There is no doubt that our commission rates are obscene. I always struggled to explain (read: not fully disclosed) to my business clients how my advice and insurance recommendations could be worth $40,000 or $50,000 in up front commission. I hear the arguments all the time, "you don't get big sales every day" (some advisers do), or "NZ has an under-insurance problem and this will make it worse". NZ does have an under insurance problem... and one the highest up front insurance commissions in the world... maybe there's a reverse correlation. The under insurance problem is not just about advisers upselling their existing clients but getting out and marketing to new clients. With commissions as high as they are, most don't bother with the hard act of marketing and prospecting because they can earn a very decent living "reviewing" (read: switching) their existing client base every few years. I know of plenty advisers who earn a decent living without expanding the overall risk coverage their base by very much at all.
This is obviously a small bunch of cowboys and doesn't pertain to the readers of this fine column...

Commission or not to commission. Easy answer right now is that those "clients" who will bemoan the amount of commission earned by Advisers will also be the MOST reluctant to pay fees.
So we then head back into the question of just how do we get in front of more people to make sure that the cover required is put in place and so the merry-go-round chugs on its merry way!
This is ALL about adding value and for many that cannot be quantified until something serious happens - trust me, at claim time no-one is upset with the fee/commission paid to the Adviser.

"Commission is for sales people, and fees are professionals". Yea right!

Its professional to help clients 9with little or no fee to use KiwiSaver to collect assets (with no upfront $30 commissions and with between .15% and .25% trail paid monthly, in arrears), so that "professionals" can charge a plan fee and manage the money for thousands each year. You won't be getting my referrals with that attitude.
Its professional to provide clients with insurance advice that costs little or nothing if no insurance is provided, even when there is no commission to be had.
Its professional to keep good financial advice in the faces of people who don't make it into the 300-400 clients that "Professionals" look after with their fees.
Its professional to stop scrapping like dogs and get on with providing good advice to ordinary people. The Government force good systems and processes on the true "point and shoot" investment advisers and insurance advisers out there. Trimming commissions to 0% won't help the client gain more access to good advice, nor will treating insurance advisers who take hard earned trail off KiwiSaver help consumers either.
Wake up.

Two points on Russell's article. Firstly, his comment that we simply call clients with the view to make money, though fundamentally correct, is only earnt once you have justified to the client why they should consider improving their level of cover and the client having seen value in your reccommendation. In other words, added further value to your client. Secondly, in 12 years in this fine business I have never once had a client acknowledge me as a middle man. In fact, I have had many convey great appreciation for the service they receive and are absolutely delighted, that they do not incur a fee for the professional service received. I agree with Ray's comment, if it aint broke, why fix it?

As an adviser working both sides of the Tasman I can advise that in Australia we (advisers) are as nervous as can be. I personally have invested large amounts in my business (based on the commission business model) and if the current system changes too dramatically, too quickly I will be in deep pooh! I am looking at my options here in NZ and there seems (so far)to be a unified line between advisers and insurance companies....or have I not spoken to enough people yet?
In any event some commissions are too high, but the line and where it will be drawn is going to be interesting. Bear in mind also that in Australia the up front commissions are close to 50% lower than here in NZ!!
So I believe there will be some movement, how much and when I could not say.

I agree with John 100% there is massive twisting in the NZ industry --- which is promoted in large by the insurance companies.I have seen offers of taking over ( twisting ) an entire book from one company to another with full commission plus bonus.This practice can be stopped in its tracks by the product providers.As for commission as a means of remmuneration -- come up with a better option John and we will all listen --- regards Bryan

John says" as long as NZ advisers want to earn the respect of their peers and clients they need to move away from being salesman." I have been in the life insurance industry for 30years 15 days and am proud of every second I have been a "salesman". My first death claim in 1981 was the result of a young lady coming into the office with her boyfriend to cancel his life policy. They wanted to save for their first house and thought the premiums he paid were slowing them reaching their goal. Not only did I "sell" them on the idea it was money well spent, the young lady took out a policy as well. Within 2years this young lady died of cancer and had it not been for my "sales" skills, she would have had no cover in place.

My largest claim to date is in excess of $1.1million. The policy was on a person who was in partnership with another. When the partnership disolved, he could not see the need to continue with any cover. He was not a believer of insurance and only had a policy to appease his business partner. I was able to "sell" him on the idea of continuing with the policy (it had been in force five years). The client died of cancer within 18mths and his wife and young family were greatful I "sold" him on the idea he needed to keep the policy.

I know of a client whose "professional adviser" charged a fee for advice and had the client cancel all his life cover. This was in spite of the fact the client's brother was a broker and advised against it. The arguement was the insurance premiums were impacting on his retirement savings and in the long term (14yrs)he would be better directing the money into retirement savings. The client died of cancer within 2 years and the accumulated savings weren't even enough to bury him.

John, insurance is "sold" by "salesman" and always will be. The challange to us all is to ensure that in future insurance is sold by competent, qualified and professional salesman.

Just because a "salesman" receives commission, does not make them any less professional than if they charged a fee. The problem we have is that if insurance was sold only to clients on a fee bases, we would have an even larger number of underinsured New Zealander's.

As far as John suggesting there is a problem with clients being "shifted" between companies, I agree. This problem is easily solved within our industry by simply cutting the commission paid on replacement policies to a level amount of say 20% upfront with 20% annual renewals.

Well, John I bet it breaks your heart finding $40,000 or $50,000 commissions in your account, but if it makes you sleep better, there's plenty of good charities that could use your commissions, to help ease your conscience.

Well said Ron! I too have a few grey hairs, and 40+ years as a life insurance salesman - unashamedly!!! As with Ron, I have paid many claims, and do you know, when I deliver the cheque, the recipient isn't at all interested in the fact that I got paid by commission! The question has never been raised.

John's comments about salesman vs professional are bunkum! I'd put my record up against his to be judged on professionalism any time!

Professionalism has absolutely nothing to do with one's method of remuneration, and everything to do with how one conducts one's self with and for one's clients. So John, I suggest that you sit with one of the many professional life insurance brokers around the country for a day and learn.

I would also suggest that the proportion of unprofessional investment advisors is probably just the same as it will be with life insurance specialists, accountants, lawyers and probably any other profession! There are ratbags in every field of human endeavour - but to generalise about the many from the actions of a few indicates ignorance and bias on the part of he/she who generalises.

John also commented on the under-insurance problem in NZ. Can you imagine how much worse it'd be if all insurance was sold over the counter... Life (and disability) insurance has to be sold as it appears to be contrary to human nature to contemplate one's own death.

So, let's stop the sniping and recognise that there is more than one right answer!

On the question of "recycling" - most of the points made are valid. If insurers stopped the practice of offering sweeteners, it'd be far less of a problem. Most offer takeover terms (i.e. little or no underwriting)- stop the practice and the problem will reduce substantially.

Ron & Graeme, I couldn't have said it better myself. I am a salesperson, & am proud of what I do, as I know I have changed peoples lives - & not just at claim time. We are all selling something at the end of the day. This is commerce; it's how society functions. How income is earned doesn't change the underlying values & ethnics of individuals. Some will alway take the easy or greedy road. Some form of level commissions & removing takeover terms will help manage the situaion, I agree.

As a commission insurance salesperson for 22 years, my first sale is myself, to build trust with people I consult with. After finding someone to listen to me about insurance ( how do you do that? many ask) and after a lengthy needs analysis process these propects may become clients and eventually I may get paid a commission, I dont own that money for 2 years because of clawback terms. So if I do a shonky job you can bet the client will have a dose of buyers remorse and cancel their covers within this period. No one wins. However if I do a standard report for a fee, who cares if they buy the cover (insurance)they need and keep it, I have been paid a fee and am off to the next one. I too have had terminally ill clients that I delivered the life insurance cheque to in person, that would not have had the amount or type of covers in place unless I had guided them professionally and seviced them over the years. I too have dealt with all sorts of claims from houses burning down to people on their death beds, literally. No one asked how much I made at claim time because I didnt make anything during those times of helping these clents in their biggest time of need, and no one asked me how much the premium is at claim time. I may have made the commission years before and can you imagine charging a fee to help a client process a claim, not the way I do business. With third generation clients now I must be doing a lot right. No insurance company paid me a guaranteed salary,4 weeks holiday pay each year, gives me a company car, covers my office expenses, pays my staff wages or allows me any sick leave or superannuation or gifts me company shares. Funny, that I dont see a lot of people wanting to be insurance advisors these days. So we have this supply and demand thing going on. The insurance company incurs the commission cost when the business goes on their books. If any insurance company has a problem paying a decent commission when they get chosen to have the privaledge of my clients insurance business please publically let us all know and I am sure we can arrange for that company not to have an opportunity to pay any more commissions, if its hurting them so much. The insurance companies will not be reducing their premiums anytime soon if commissions were reduced, especially with pending tax changes for life offices, so who would benefit by less advisors and less insurance sold, not Joe Public, not the economy. How many "professional" fee charging investment advisors put their clients hard earned money in Finance companies or other areas where their advice was taken for a fee and clients lost their money in part or whole? How many fee charging lawyers("professionals"?) have been in the media for the wrong reasons over the years, its the one percent of fee charging lawyers that make the other 99 percent of fee charging lawyers look bad. Everyone loves paying fees, dont they?.As has been said being profesional is about a lot of things, integrity for one, and not how you are remunerated or how many letters you have after your name either.There should be choice as there is now, of the way an advisor is remunerated.One style of remuneration isnt going to suit all types of advice or products, if you want to charge a fee especialy for investment advice, great, if you want the commission option, usually best for insurance advice, great. And remember the bean counters should stick to counting beans :-)Have a nice day.

I think the arguments against commission in the UK and Australia are more to do with investment products so maybe not that relevant to life insurance in NZ. Endowment style products that bundle savings and insurance together are still common in the UK. In Australia, the problem is with trail commissions on compulsory super funds. For those who have been contributing since it was introduced in the mid 80's, the funds have accumulated to substantial amounts. If you are paying 0.25% trail commission on a member's account of say $200,000 that's $500 a year - a lot of money when all the adviser does is send you a xmas card once a year.

With rate-for-age risk products dominating the NZ insurance market, commission of 200% of first year premium (and it can be this high when you add on volume bonus etc) might sound high not in dollar terms it is not. It’s only $1000 on a policy of $500 API. My dentist charges that for an hour's work.

Are real estate agents who take many thousands of dollars for bringing a buyer and seller together going to be brought into this discussion? Why leave them out? What about lawyers who will have a go on a no-win-no-fee (20% if you win?) type arrangement? Both could be considered, in a way, kind of similar to an insurance adviser going to meet a new lead for the first time. No 'win' no commission.

The 'esteemed' and 'more professional' model of remuneration Fee For Service has some real flaws that commission does not. I would have thought Russell could have gone a bit deeper on that thought.

I recently sacked my accountant because his fees had become outrageous and I could no longer justify paying that. I don’t like being charged $$$ per 15 minutes spent answering my little questions! And the overall costs for the same service are much lower at my new accountant.
Problem: What fee to charge, and who is willing to pay, especially when the public for the most part is already disinclined to buy? I use an accountant cos I HAVE TO.

We all know that lawyers soemtimes drag out litigation to line their own pockets.
Problem: Fees have to be earned, so while a client may well be happy with their arrangements, a renewal commission would suffice, but the adviser will now have bring them in for a chargeable service (clients getting 'advice' they don’t need or don't HAVE TO HAVE) ? Good luck.

We all know that while pretending to work for the vendor, who pays them, the realtor spends a lot of effort bringing the vendor's expectations down to "meet the market" then charges their commission once the vendor capitulates.
Problem: The financial interest of the adviser has moved. Under a fee model the best interests of the client CAN be forgotten. No two-year clawbacks, fees for annual reviews (what if the clients refuse?) which previously would have been free. Mmore and more fees and a struggle to justify them.

It is not MY aspiration to be THAT KIND of 'professional' and I am quite comfortable NOT living up? to their standards thank you very much.

Interestingly SOVNET now claim to have the best persistency in the business. Second is AMP. The independence of charging fees and from being an 'independent broker' can now be regarded as a greater opportunity to churn. The 'tied' agency forces write business that sticks better than the independents. We know the inherent risks with churning, and the potential disadvantages to the clients, so which group (tied or independent) is truly looking after their clients best interests more?

The reason commissions are still the most common form of payment for selling insurance is because no other model suits the greater public better, the companies better, and the advisers better. Those who hold themselves as superior or more professional because they have switched to a fee based system have in fact done nothing more than find a niche, and a small audience who appreciate that way of thinking. The Gareth Morgan Club?

What is your LAST NAME, John? How much do you charge John? What is your persistency John?
I am a SOVNET adviser. My persistency recently dropped to 92.5%

Long live the insurance Salesman.
Long live commissions.