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Views on regulating commissions

Sunday, July 9th 2006, 10:28PM

by Philip Macalister

Naomi Ballantyne's idea that regulating commissions paid to insurance advisers has garnered a range of view - as one could expect.

I'd have to say I have been sitting on the fence with this one a little. It is easy to see Naomi's view, however the idea seems an anathema to free market enterprise.

What I've done here is publish some of the responses we have had to the story. Have a read and if you would like to add something send an email to blog@goodreturns.co.nz

An open-minded view
The idea has merit, and deserves some animated debate.

There are enough potential conflicts of interest that turn up on an adviser's radar screen without continuing the existing situation that encourages skewing advice towards products or product suppliers that offer better adviser remuneration (including soft dollars) than other carriers.

Some aspects of commission that merit further debate are:

  • Should full commission be paid on replacement business?
  • A commission cap (in dollar terms) on large premium cases. In some instances the amount of commission paid on large cases is way out of line with the effort involved in completing the case. A way around this may be to offer far less up front and more as a trail;
  • Aligning maximum commissions and bonus levels on similar product lines across all carriers.

Advisers have special skills
I believe that market forces should dictate commission structures and they should not be regulated. It is also important to avoid creating a barrier of entry for new advisers wanting to come into our profession.

It must be remembered that the life insurance broker is a special breed; the majority of the population simply do not have the attributes to run a successful practice. They either lack the diverse range of skills required, or they do not have the stomach for the emotional highs and lows that will be encountered, particularly in their early years in this profession.

A personal view from someone inside a life company
I must agree with Naomi in a personal capacity certainly from the point of view that by doing this we as an industry will then focus our attentions more on attracting business by developing better products and hence as a spin off have the interests of the policyholders at heart 100%. We will shift from wooing some advisers by paying better commissions to getting support because we have better products.

The industry's R&D areas will now need to really get their acts together as a result. Isn't that a great competitive environment to work in?

F&G Comparison
Our practice includes a substantial fire and general book. All F&G insurers pay pretty much the same commission as one another and have done for years. Presumably they decided among themselves that this was what they would do in the interests of promoting an orderly market.

I can't see a problem with the life companies doing the same thing, as long as it wasn't done in such a way that advisers were disadvantaged.

Better to come from the companies voluntarily though, rather than to have it imposed upon them by regulation.

Absolute Bollocks
In this politically correct governance environment encouraged by our beloved leader (Helen) all sense is lost if you pause long enough to think not about how much you can do your client for…rather than how much you can do for them.

If it were deemed legally responsible to declare your own capital gain from the transaction, to be fair, one would have to include every other financial transaction ever completed in any day. Imagine having a certified declaration for:

  • Every petrol bowser declaring how much profit there is in every litre of petrol for the retailer
  • How much profit there is for the wholesaler
  • How much profit there is for the government
  • Or on the sale of every item of furniture either made in New Zealand or imported from the sweatshops of China?

Why pick on the financial services industry? We all know the mark up on some retail goods is alarming, but if we choose to buy to satisfy our need then we pay the price. If we do not like the price we either do not buy at all (regulation enough) or we shop elsewhere.


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