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Last Article Uploaded: Monday, January 24th, 7:00PM


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Cut your commission to compete, says Sovereign

Sovereign has defended the cheaper premiums available on its products via The Warehouse website, saying advisers can compete by lowering their commission levels.

Wednesday, January 25th 2012, 6:00AM 26 Comments

by Benn Bathgate

While Sovereign sets the standard commission rates, the company said advisers are able to reduce their upfront commission percentage to in turn provide a reduction in premium to the customer.

Sovereign said this was known as ‘variable commission' and that advisers can select this option at the point of sale via the Sovereign quote software.

One adviser - who wished to remain anonymous - compared The Warehouse's premiums with ones in Sovereign's adviser software.

In each of the six cases (see below), the same level of cover was cheaper via The Warehouse.

"As a broker this greatly concerned me that we have always been assured quite categorically by Sovereign throughout the years that whatever distribution model they happen to choose, they will charge one rate and one rate only," they said.

The adviser also examined how far they would have to reduce their commission to compete with The Warehouse prices by comparing figures they inputted into the Warehouse website with Sovereign's quote software for brokers.

"On some of them you had to rebate everything, it was up to $250,000 [of life cover] you have to repay everything in order to match The Warehouse premium."

The adviser said it wasn't until reaching life cover of $500,000 that "you only have to rebate 60% [of your commission)]."

Sovereign adviser general distribution manager David Haak said the differing commission was down to The Warehouse.

"They [advisers'] shouldn't be worried because at the end of the day the actual model we use is the same and the underlying rates are the same as we use in the adviser market, it's just the commission that's changed."

He also said if advisers wanted to compete with the lower Warehouse premiums, they can "compete by cutting [their] commission to the same levels as The Warehouse."

Sum assured




$100,000 $43.95 $35.63 $8.32
$200,000 $78.52 $64.72 $13.80
$250,000 $94.36 $78.25 $16.11
$300,000 $109.24 $91.29 $17.95
$400,000 $133.43 $113.85 $19.58
$500,000 $152.44 $133.41



Table supplied by adviser. Data from Warehouse website and Sovereign's adviser software tool. Premiums monthly.

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to

« New online venture offers cheaper Sovereign and OnePath cover Fidelity Life's rating reaffirmed »

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Comments from our readers

On 26 January 2012 at 1:14 pm Brent said:
Once the banks take over these insurance companies, the whole game starts changing. The response here, just shows how much they are about the adviser force.
On 26 January 2012 at 2:17 pm Kerryo said:
Oh well, guess who may be going to loose new business from one of their channels?

Also had a networking contact (not my client) tell me this morning, that he was "shopped" this week by a certain bank (starts with A ends with B) who had full details of his insurance cover with Sovereign (which they never put in place) and which was never volunteered to them or any authority letters signed.

Just a bank person doing some telemarketing, but I wonder what they had on the computor screen in front of them?

"Makes you wonder don't it?"
On 26 January 2012 at 2:45 pm Mortgage broker since 1999 said:
Any good adviser that works for the clients best interests shouldnt have any concerns over this, as Sovereign is not always the best based on benefits and or price even with the Warehouse discounts.

The advisers that should be concerned would be the Sovereign QFE's as they have to direct 85% of all their sales to Sovereign to obtain QFE status with Sovereign.
On 26 January 2012 at 3:42 pm Observer said:
This is what will happen when bankers take over the insurer. Sure, it has taken a while, but, they have no commitment to the adviser model, and will do what need to to get the growth on premium that they want/need.
So, the message to advisers is: Watch who you place the business with - they might look good today, but if the ultimate owner is not insurance-focused, your relationship may well be the casualty in the future!

On 26 January 2012 at 4:50 pm Mark Jory said:
Those that buy from The Warehouse are probably not the A & B clients a good Adviser would want to build their business.

So for me, this is not an issue as these clients would simply change whenever they find a cheaper price.
On 26 January 2012 at 10:39 pm Chris of RMS InControl said:
Might this be the provocation that many in the adviser sector need to wake up and examine their value offering…?

Banks and many other retail outlets like The Warehouse have strong brand capital, a captive audience and now it seems discount pricing to boot!

That said, a ‘genuine’ financial adviser has something to offer that banks and other retail outlets will likely never have, and that’s a sincere interest in their clients welfare (beyond the next KPI target), and first class financial advice.

However, if, as an ‘adviser’ your service offering is little more than that of the banking and retail sectors i.e. you supply good insurance product but with minimal financial advice, and if these sectors can offer the same for less, then it stands to reason that their insurance offering makes better economic sense for the insurance sector and consumer alike.

If your business is not ‘advice’ first and ‘product’ second, the answer is to take your eyes off what your competitors are doing and put them on what you’re doing, otherwise sooner or later you’re likely to become a casualty of a changing world. Tool up, get your priorities right and compete!
On 27 January 2012 at 9:05 am anon said:
Just had a quick look at the Warehouse - no wonder its cheaper - its a different product and has no advice.
On 27 January 2012 at 10:53 am AFA Muggins said:
Once the insurance advisers wake up to the fact that the umbilical cord to the product providers does nothing for their relationship with clients, perhaps professionalism and value to the client will increase.

17 years ago I was 100% commission based. Now it forms a tiny part of my income - fees and client satisfaction are the future. The future is here and now.
On 27 January 2012 at 11:38 am Tony W said:
I completely agree with Mark Jory. Speaking from experience regarding insurance sold through "other retail avenues", its often found a very large majority of the clients applying for cover were clients who either due to obesity,serious illness or both were unable to get insurance anywhere else. Most of these people don't read the fine print so they don't realise its underwritten with Sovereign. The very same company who may have turned them down before. Nor do many of them have a good grasp of non-disclosure - something that can only be properly explained with having a financial adviser on board.

I don't think you have anything to worry about. Nothing replaces having a quality broker to arrange your insurances.
On 27 January 2012 at 12:59 pm billy the broker said:
Just curious, I assume the warehouse product is YRT??? So when the clients premium starts skyrocketing down the track I suppose they can go into where they bought it from and get some advice on leveling the premium etc etc???
On 27 January 2012 at 1:55 pm Amused said:
Well said Mortgage broker since 1999. I could not agree with you more!

Still can't fathom how a QFE adviser (Sovereign, AMP etc) has that conversation with their clients? "Well there's an insurer available in this instance with a better product etc but I have to place you with Sovereign to keep my QFE status" Clearly it doesn't even come up for discussion does it?

On 27 January 2012 at 6:45 pm FNSL said:
You pay for what you get - no real financial advice, no port of call if a claim is triggered and the potential of a rejected claim through non-disclosure. Fair Go is going to have a field day with this one.
On 28 January 2012 at 5:51 pm Ron Flood said:
Amused, why would a QFE adviser have to tell their client's that there is a better product. The legislation only requires that they provide the client with a product that is "fit for purpose" and act in the interest of the client.

It is up to the client to search out the better product. As long as the QFE adviser has told the client of the restricted product line they can offer, they have fulfilled their obligation to that client.

If the client decides to buy the product there is no problem.
On 31 January 2012 at 11:34 am Johnny said:
A question for some of you- not everyone shops at Pak n Save. Why?
On 31 January 2012 at 1:08 pm Amused said:
Herein lies the problem with the QFE adviser model Ron. Clients are automatically pigeon holed towards a product that is good remuneration wise for the adviser/QFE itself but may not necessarily be in the client's best interest. The expectation that clients should then "themselves” search out the better product makes a complete mockery of the "advice" process that is supposed to accompany recommending cover in the first place. As a client why would I persist in dealing with an adviser who says to me I have to do my own homework if there is a better product/insurer that they can’t offer me? Sorry!

I guarantee you now QFE advisers will not be the ones writing all the new business in the future. Younger clients will simply not tolerate this "one flavour of ice cream" approach that some insurers (Sovereign & AMP) seem to think they can still shovel. Independent advisers who can give their clients access to "multiple" insurers and products will flourish whilst those that are content to sell just one insurer’s product will wonder why they are not busy. Isn’t this a bit of a ‘no brainer” business wise for advisers selling insurance??

P.S. To quote the legislation on this subject is all well and good but I’d like to see a client’s response to this attitude.
On 31 January 2012 at 10:14 pm Ron Flood said:
Amused. I think you have underestimated the Sovereigns and AMP's of this world in thinking they will operate the same way in the future as they have in the past.

I expect that they are very aware of the need to have innovative and market leading products in order to survive in the future.

Advisers who choose to operate in the QFE space will still be able to offer top end products as long as the product providers keep up with market trends.

In my experience the number of "Independent Advisers" who actually use the "multiple" insurers they have access to is not great. Most will have a lead provider with 3 or 4 others picking up the balance of their new business.

With regards to the advice process, this
does not necessary extend to telling the
client there is a better product available elsewhere. It requires you to give the client the best product you have in your range of products to solve their need. If you do not have a product that provides a solution to their needs then it is up to you to advise the client accordingly.
On 1 February 2012 at 9:20 am Bewildered said:
"This is very interesting. However having read the article from Benn it is not really very clear. On comparing current Sovereign rates at NIL commission with the rates on the Warehouse site for up to $400,000 sum assured for a 40 and 45 year old, the Warehouse beats the Broker nil rate nearly every time. It is wrong thinking to say they are different markets (ie Brokers Versus The Warehouse); what has that got to do with ANYTHING? The rate should be the same regardless as otherwise next week the ASB or any other outlet will also be undercutting us. David Haak response does not appear to tie in with the facts, or I/we are missing something; Sovereign PLEASE respond and tell me where I am/we are going wrong!"
On 1 February 2012 at 2:29 pm Amused said:
Ron my point was that I don't believe the bulk of QFE advisers would actually advise their clients if there was a better product that suited their needs elsewhere. Ethically I have a major problem with that stance from an adviser sorry (them covered by legislation regardless) hence why I would never align myself to one provider only. As another reader posted above QFE advisers are the ones that need to think long and hard going forward what's more important - their own best interests or their clients? Regulation will indeed make life interesting now for some of these advisers with the complaint process available to consumers. Of course many advisers aligned to a QFE genuinely have no knowledge of what other products are available to their clients elsewhere in the market. This is truly sad and makes me wonder do they really care about their clients or not?

Having recently witnessed AMP's stance when it comes to giving client's "choice" where they go for their cover I am sorry to say it's business as usual at AMP. No choice.

Sovereign I would concede as been innovative but AMP? Sorry, no. Look at who wrote all the new business last year and where did AMP rank in the scheme of things? There is a good reason why AMP are well down the list and most advisers recognised this when making a recommendation for a provider.
On 1 February 2012 at 5:30 pm Skeptic said:
This blog was about Sovereign supposedly offering different rates via different distribution channels, something I would suggest is VERY important for everyone in the Industry regardless of whether you are an AFA, RFA or deal via a QFE. Why do people insist in entering into private philosophical discussions about completely different topics? I very much agree with the points raised by bewildered above and would love to see a response from Sovereign, Ron and Amused can you not phone each other up??
On 1 February 2012 at 8:51 pm Ron Flood said:
Amused, well said. I share some of your concerns that some clients may not be given the true picture when dealing with advisers that are limited in the products they can provide.

I am sure that the next 2-3 years will throw up some very interesting case studies that will keep the regulators busy.
On 2 February 2012 at 1:26 pm Amused said:
Indeed Ron. Indeed. Let us hope that going forward clients do get advice that is not just beneficial to the QFE advisers themselves. I encourage all those advisers that are aligned to a QFE to get out of their comfort zone and re-educate themselves on what newer insurers are able to offer their clients in regards to improved features and benefits. You might get a real surprise and of course where it’s appropriate you can place your client with a new insurer which will see you rewarded for your time and diligence.

Ron as you point out the regulators could potentially have a field day with cases whereby a client was not told at application time that there was a superior product available to them that their adviser could not offer them. An example of this would be the recommendation of a health insurer that didn’t offer non Pharmac drug cover. Client then suffers a serious health issue 2 years in the future requiring expensive non Pharmac drugs and their insurer won’t help pay for the treatment. How could an adviser live with themselves knowing that they could have seen their client with an insurer that would pay for this treatment? I very much doubt that the client will see the adviser’s ignorance of what other insurers were offering as an excuse.
On 2 February 2012 at 5:41 pm Skeptic said:
Ron and either of you read anyone else's submissions?
On 2 February 2012 at 9:48 pm Ron Flood said:
Skeptic, I would love to phone Amused but like you, Amused also chooses to post anonymously.
On 2 February 2012 at 11:16 pm billy the broker said:
Lets be honest team it all about the money!!
On 3 February 2012 at 2:49 pm Ron Flood said:
Skeptic, yes I do but the thread started by Amused interested me more. I am not in the least bit concerned about cost cutting of Sovereign's premiums through the warehouse.

If the cost of distribution is less costly for them, let them go for it. I think there are far to many advisers out there more worried about protecting their patch rather than give good advice.
The client's who buy online through the warehouse are most likely not clients who would buy through a broker anyway.

We can offer our client's advice when purchasing and support when claiming. Both are benefits that the Warehouse can't compete with.

Studies in Australia recently showed that people who purchase online have significantly less cover than those who use an adviser.

If in the future I start getting a number of my prospects buying on line rather than taking my advice I may start to be concerned. Until then the show goes on.
On 14 February 2012 at 5:22 pm Skeptic said:
Hi Ron, not ignoring you only just seen your response. My concern here is that Sovereign seem to be operating two levels of premium. That is a very dangerous precedent; will you be concerned when your clients can get a cheaper policy via the ASB than they can from you..... even if you cut your commission to zero? If clients wish to purchase on line I have NO concerns, but I expect the Insurer to offer the same cover for the same price.
Commenting is closed



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