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MJW suggests end to overrides

Questions are being asked about whether insurance broker dealer groups will survive if recommendations suggested by a report into the insurance industry are adopted.

Tuesday, October 13th 2015, 12:00PM 3 Comments

by Susan Edmunds

Actuaries Melville Jessup Weaver (MJW) have been working on a report for the Financial Services Council.

It is intended to suggest a solution for any misalignment of incentives between advisers and clients that it uncovered. It follows a similar report by John Trowbridge in Australia, which led to large reduction in advisers' upfront commissions.

An early draft of the MJW report was submitted to the FSC Council for review at a recent meeting but was sent back for more work.

The report recommends removing overrides, which some dealer groups rely on for their income.

It also wants to remove soft dollar incentives such as trips that are offered to advisers who meet certain sales targets for insurers, and is calling for an reduction in the level of upfront commission paid to advisers.

One industry source who did not want to be identified said elimination of overrides could make it hard for some dealer groups to survive if they had not been corporatised.

But he said there was support from insurers for a reduction in upfront commissions because none of the companies wants to be the first to act and risk losing adviser business.

Jeff Page, managing director of Kepa, said he had heard the recommendation that overrides should be dropped.

But he said he did not want to comment. “You’ve got to read the report in totality.”

MJW actuary Mark Weaver is out of the country until November.

FSC chief executive Peter Neilson has been tight-lipped about the report and on whether it will be released to the public.

The insurance industry is also working through an FMA investigation into the issue of churn.

Tags: Churn Dealer Groups financial advisers

« $500k health claims unlikely for nowLines drawn in commissions debate »

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Comments from our readers

On 13 October 2015 at 2:09 pm Majella said:
Many Dealer Groups do a great job in supporting advisers & growing their business (Kepa & Solutions in particular).

If the Insurers elect to pay an overrider to such groups, it is surely their business decision to do so. They will have criteria, one supposes, as to how that OC is spent.

As an adviser, I do NOT see the OC as 'mine' or even as generated 'off the back of my work', an opinion I have heard expressed recently. Balderdash! That money is the Insurers' to do with as they see fit.

However, I would be severely disappointed if this process results in:
a) destruction of my supporting dealer group;
b) a requirement that I now spend $20,000 p.a. accessing services that were previously funded through the dealer group's override;
c) and at the same time see commissions SLASHED Trowbridge - style.
Not a few of us would be looking for a new line of work.

The FSC has a vested interest in seeing commissions (in all forms) reduced - after all, it's the insurance issuers club.

It's quite clear from conversations with any number of functionaries & executives within the retail insurance companies that they seem to view advisers as "overpaid & under performing", a cost they'd love to eliminate or severely reduce.

The two biggies - being bank-owned - are also QFEs and are writing more business through their banking relationships than through brokers now: they get to retain the commission within the group and add it to operating profit!

I'd be very keen to read the finished MJW Report, and would be disappointed if the FSC doesn't release it.
On 14 October 2015 at 2:13 pm guscott said:
I suspect reductions wont go far enough for at least one major insurer. I note that in the recently released FAA Review submissions that AMP are promoting a reduction in commission to 20% upfront thereafter a total removal and shift to fee for service. Their reasoning is that among other things premiums in NZ are up to 30% higher on average than in Australia largely due to excessive commission. Yet their suggested rate would only result in a 10% reduction in premiums. I am sure their advisers will be very supportive of these suggestions. Most other submissions seem to steer very carefully around this with a common theme being that it is not the level per se that is the core issue but the lack of transparency.
On 14 October 2015 at 3:38 pm The Oracle said:
I agree 110% with your comments Majella like you I get a lot of services and support from my dealer group and knowing they understand my business and have my back in an industry that sometimes feels everyone is out to get the adviser is reassuring. Dealer groups are in the trenches with us advisers and understand our issues unlike professional associations or some providers. I'm PART of another well-known dealer group as I don’t like the "deals for some and not others" that is taking place within KEPA, that have been done under the table… Guess that’s why Kevin Smee left also, but good luck to all the dealer groups as we want to see a strong adviser network.

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