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Survey finds consumer support for life advice commissions

A survey out of Australia shows that consumers prefer life insurance advisers to be paid by commission.

Thursday, February 17th 2011, 3:51PM 10 Comments

Just under 80% of consumers believes commissions are a fair way for financial advisers to be remunerated and 57% would be less likely to seek life cover if upfront fees were compulsory.

The findings are from a research study commissioned by Zurich which asked 300 consumers to consider questions on how advisers are paid for providing life insurance advice and services.

When given a choice between paying adviser commissions via their insurance premiums or paying an additional, upfront fee, 79% of respondents said commissions were fair, with the remaining 21% disagreeing.

The survey also found a majority opposed compulsory fees for advice.

"Whilst one third of those surveyed said that moving to an upfront fee-only model would make them more likely to seek life insurance advice, a disturbing 57% said they would be less likely to seek risk advice if they were forced to pay an upfront fee," said Zurich Life Australia general manager Colin Morgan.

The insurer said these figures suggest the overall risk market would reduce by 24% if risk commissions were banned.

Morgan said parties purporting to represent consumer interests have failed to engage with those consumers and that, according to their own research, "consumers are supportive of the concept of commissions in risk provided there is transparency about them."

The report also found the maximum fee a consumer would be willing to pay for risk advice would be A$605, a figure Morgan said is well below the real cost of advisers providing that advice.

"Legislating the way - and effectively the amount - advisers can be remunerated for the advice they provide is contrary to the concept of providing consumers more choice," he said.

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Comments from our readers

On 18 February 2011 at 7:51 am Bazza said:
and 300 Aussies can't be wrong... Commissions are like the force and should only be used for the good of the client, unfortunately there are those from the dark side who use them on unsuspecting clients for their own evil purposes. Caveat emptor and have a great weekend.
On 18 February 2011 at 2:32 pm Andy Phillipson said:
Let's be realistic here too - commissions were developed many years ago as a fair and acceptable way to charge clients and remunerate agents. Why change it? We are where we are today through evolution. You cannot suddenly change a successful adaptation that has taken eons to evolve.

And Bazza - I totally agree.
On 18 February 2011 at 10:30 pm Geoff said:
Would a fee be charged whether the prospect
bought or not? If a fee is charged regardless of the outcome then the fee system would be wide open to abuse! would it not? Would the fee be based on time spent with the prospect plus time spent on preparing the recommendation? Also would a fee instead of commission lower the cost of the insurance product to the client? and if not why not?
On 21 February 2011 at 2:45 pm Johnny Adviser said:
Who wants to be first in a race to the bottom of the price heap. Correct, no-one. I thouhgt the whole point was getting more people insured, not fewer. If it ain't broke, don't fix it.
On 21 February 2011 at 3:13 pm Regan said:
Totally agree with Bazza.
Geoff raises some good questions, if you vary the commission on most life companies quote software to 0% the premium discount is around 20%. This is where the pinnacles and other such direct marketers get their budget from for direct marketing and websites and so forth, by not having agents re-purposing much of that 20%.

In other words, what value does the fee model bring? The non-advice model (direct) adds no useful value in terms of service and advice etc, and isn't really cheaper, so customers employing an adviser are effectively getting our advice at very little or no cost. Why mess with that?
On 24 February 2011 at 5:12 pm Brent Lewis said:
Bureaucrats and academics have to do something to justify their salaries. It's a pity they weren't paid on a results basis, many wouldn't be any to afford the bus ride into the office.
On 25 February 2011 at 12:12 am Consumer Eyes said:
I doubt the survey explained commissions are just in effect a loan made by the insurer that costs the policyholder anyway out of their premium payments because their policy is loaded with the cost. Its just a suitable time to come up with a survey to try to reverse the closure of the commission driven industry desire to feed hungry agents, who are trained to feed an even worse insurance company that needs new money in a mature market or it starts to fail actuarially.
On 25 February 2011 at 7:24 am High Road said:
This issue isn't so much with the fee structure, but the lack of understanding by some advisers that there is an obligation to provide ongoing care once the policy is in place (rather than just collecting all those lovely annual trails). Bazza hit the nail on the head. Just a shame insurance advisers aren't shoved into the AFA fold like the rest of us. The difference between an insurance adviser providing advice and an AFA providing advice is the great big stick being held over the AFAs head.
On 25 February 2011 at 1:50 pm denis said:
Pardon my cynicism, but a survey commissioned by a life insurance company will show a result confirming that what they do is good/popular. That's the whole point of doing it.

With the right money, and the right questions to the right group of people, I am sure that Dracula can demonstrate via a survey that his services are popular and valued.

On 5 March 2011 at 11:53 am Barry said:
I have only just seen "High Road's" comment and am amazed that such arrogant ignorance should spill forth. 99% of my business is risk and I regularly assist clients with claims, with regulating their budgets, with ensuring their insurance covers are appropriate to current needs and will continue to do so until I retire from this business. All this and more in return for the initial commission I or some earlier adviser received ( didn't sell every policy in my agency) plus the renewal commission of between 3% and 12% depending on product. Where I and most insurance advisers differ from many financial planners is that not one single client of mine has ever been charged a fee or ever lost a cent on an investment with a finance company. The only money any of my clients has ever lost has been as a result of the appallingly bad funds management that besets the long term superannuation savings industry in this country, but of course this is carried on by those very superior types who, like "High Road", appear to think of insurance advisers as a lesser form of life and insist on talking in jargon to preserve the mystique surrounding the financial planning industry.

As for regulation, it happens that I have chosen to go down the AFA path as have all the advisers in my practice, so the big stick is there for us as well. I believe we shall continue to be paid by commission because that is the only way that we can be certain that the public receive advice on their risk needs. Even then there will always be a percentage of the population who will avoid being insured at all. If we moved to a fee based insurance model I suspect the life insurance industry as we know it in this country would die, certainly we would have an even greater proportion of the population than now with no insurance at all to protect their loved ones. Is that what we want? Do we really want to create an even greater dependency on the state in time of trouble or do we want our people to stand on their own feet and look after themselves and their families with the certainty that a properly designed package of insurance products brings.

Get off your high horse "High Road" and smell the coffee.
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