3 Comments 3 Commentsby 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.
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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.