Soft commission under scrutiny

The paper said restricting or banning commission was not a preferred option for the review of the legislation, but asked the industry for its views.

There was little support for major change to commissions. Submitters said commission was one of the only ways to compensate advisers for providing advice to clients who did not want to pay themselves.

But there was more debate about the issue of soft commissions and volume-based incentives given to advisers.

Most insurers offer overseas conferences and trips as an incentive to high-performing advisers.

But one such insurer, Partners Life, said volume-related incentives could be restricted or banned for people who were giving advice rather than making sales.

“They are not contributing to the costs or profits of the adviser business (ie the health of the advice industry) yet they have the potential to unduly influence the advice provided and they are hard to justify in terms of consumer benefit.”

Janine Scott and Michael Naylor, of Massey University, supported the call, saying there was no justification for them and they tended to create undue incentives for unethical behaviour.

AMP said it supported more transparent and complete disclosure of remuneration from any transaction, and said advisers should not be allowed to state merely that they might qualify for an overseas trip on the basis of their sales.

“This should include disclosure of all remuneration that is directly or indirectly paid to the adviser as a consequence of that transaction. A value must therefore be attributed to any soft commissions that are payable or any bonus payable based on volumes. In our view if an adviser is unable to quantify the commission earned such a commission should not be paid.”

it supported the removal of soft commissions and volume aggregation and would support regulation to prohibit disproportionate initial commissions. “We accept that this position may not be widely supported.”

Comments from our readers

On 28 April 2016 at 8:36 am Aurora said:

"I might qualify for an overseas trip" this statement is true and not misleading as we all know any incentive trip is not confirmed until the qualification period is finished. Would the people at AMP then wish for us to write to all of our clients and inform them perhaps 10 months later a trip has been achieved? As for disclosing commissions earned then I would also disclose costs involved because as we know advice must be measured and illustrate the advantages and limitations of a product. I am tired of hearing about the disclosure of commissions, concentrate on the quality of the people giving advice and let us earn.

On 28 April 2016 at 4:34 pm Dirty Harry said:

Funny that Partners and AMP would like to make such comments. One having a long established history of incredibly elaborate "conferences" and the other once proposing a trip to the playboy mansion.

On 29 April 2016 at 12:13 am Donald said:

Harry AMP and Partners have played the same incentive option as all other insurers, The fact that they are prepared to put their hands up and make comment speaks volumes to their credit. To single out something that never happened as far as Partners is concerned demonstrates your desire to discredit a provider who is making a positive difference in our industry.

On 9 May 2016 at 12:25 pm Backstage said:

I just love how Insurance Company executives and folk in educational facilities whose lively hoods generally depend on someone marketing a product to a client have an opinion. Question, are consumers complaining? If they purchase the same product from an adviser that didn't go to a convention or chose not to go, do they pay any more premium for the solution? I have a client that owns a Civil Construction business and 1 of his concrete pipe suppliers took him away to an industry convention... Am I to imagine that he would compromise his judgement on quality or that he would cut corners given regulation in his industry just to go away with a supplier? Also, i have many adviser friends who qualify with all suppliers for all conventions, some go to some and some dont go at all... what of them? Academics, commentators and managers at supplier companies should just keep there head down and do what they are meant to do and not comment on how an adviser (doing a good job) should be paid and or whether they think they should go to a convention.. are consumers crying out here, is there a problem... when i used to go to these things (i do not now) i would tell a client if it happened that that particular sale was going to qualify me, (i dont bother now as i dont go. My observations of these commentators is they have some idea but no real idea on how to run a practice, the cost including getting to a point where an adviser actually now has a practice with income (unlike when they started).. Lets not throw out solutions then go looking for a problem.

On 9 May 2016 at 12:44 pm w k said:

@backstage: i'm with you. i also sometimes wonder - let's say there were no advisers at all and nobody is interested in the job. will the same people say "let's give attractive commission and incentives to get people interested to be an adviser".

btw, some companies - law & accounting firms, corporates, etc - throw big parties at the end of the year, should they not stop it and reduce the profit/fee they make from their clients instead?

just a thot.

On 9 May 2016 at 3:24 pm Dirty Harry said:

+1 Backstage,
Donald, I see no "credit" in AMP and Partners' postulating over commissions etc. I do not seek to discredit them in particular, just to reply to their hypocrisy and latent self-interest. Other companies have wisely chosen not to comment.

Neither would be first to have looked across the tasman and compared the commission structures over there. While 40% or more of their new business comes from the adviser channel, and the most persistent and high-quality business at that, they know they must compete for their share.

Since none wish to lead the market down, they have decided to try and frame the discussion around regulation in the "best interests" of the consumer. Any comment defending the status quo, can then be cast in the light of conflicted remuneration etc.

That their commentary happens to align rather nicely with their shareholder's interests, and is in itself a conflicted position, well we are not meant to/expected to notice?

On 11 May 2016 at 9:07 am Backstage said:

I just love this quote, "Janine Scott and Michael Naylor, of Massey University, supported the call, saying there was no justification for them and they tended to create undue incentives for unethical behaviour" ..... wow, they could work for MJW which 1 of them criticised lately for an at best anecdotal paper.. where is the evidence of this "unethical behaviour"... if they have some this should be reported. I hope none of my University Fees previously contributed to any academic going on a convention... how unethical that would be :)

On 11 May 2016 at 12:22 pm John Makowem said:

Soft dollars are not a good look whichever way you look at it. We are handsomely remunerated for insurance business in NZ (way over the odds by global standards). This sort of incentive is tacky and reinforces the perception(often mistaken but not always) that insurance advisors are merely product pushers. As long as we try to justify the unjustifiable this perception will never change and the public perception will be that we are no more than salesmen...not valued advisors. If we hope to be seen a professionals this attitude needs to change.

On 12 May 2016 at 10:40 am seandnz said:

If disclosure is required for advisers, what about Bank staff who also get staff benefits, bonuses etc when they meet sales targets such as life insurance sales? it seems to me there is a double standard going on here. I would not expect the bank staff selling insurance to disclose their base salary, but I would expect them to disclose remuneration for insurance sales.

On 12 May 2016 at 5:42 pm Mike Naylor said:

@backstage - As part of my job I'm expected to offer my opinion, its actually part of 'what I'm meant to do'.
I do understand your business. And I do go to industry conferences. Please talk to me when you see me at the next one. I love discussions with members, and yes, I do listen.

The article does shorten what we said in the submission to the Ministry. We do support soft dollar where they enhance skills. However in general they are a bad look.

What would you think if you went to a doctor who recommended at you have an operation when you knew he got a large kickback?

Insurance is serous stuff, you are more important than plumbers, badly sold insurance destroys people's lives. You can't be expected to be left alone to just 'sell' as you wish.

You need to stop comparing yourself to tradespeople and think a little higher.

On 13 May 2016 at 9:17 am Backstage said:

Mike, I think actually you and I would meet in the middle. I have worked in senior roles for several Insurers over the years and also as an adviser form many years. I have observed whist working for insurers Senior Management attitudes that really, well lets say they really do not have an appreciation for most advisers and have assumptions they work around. Actually a simple model like the Porters 5 forces would point out that suppliers feel envy at some distributors as there lies power... and of course they would like to strip that back and have tried but the same old models kept getting presented with another twist. We agree that the consumer needs professional advise (aside from those who will like DIY. I just get frustrated at hearing the same models rehashed an introduced as something new. Clearly identifying the actual problem in business is the key... stop dealing with symptoms or imagining a problem. I bet we agree on most things. The ideal would be we all get around the table with the right spirit and the consumer in mind and together work toward a better future. I agree, for those that want advise, professional advice is the key.... i also agree this site, well it like any can full of sound bites. Thanks for responding and being good spirited. If i attend another conference with speakers and content that appear worth going to i will come and say hi... but, i have a business to run :)

On 13 May 2016 at 11:09 am Dirty Harry said:

Mike I understand your point, but would question the example of the Doctors. If you think soft dollars are a bad look in our business, then I would advise you not to look too closely at the medical sector. When your GP writes a script using a Glaxo pen, on a Roche pad, you do start to look. The eye popper was I had a client who was a drug rep - the stories she tells, well....

Soft commission under scrutiny

A restriction on soft commissions for advisers has been mooted in submissions to the Financial Advisers Act options paper.

Thursday, April 28th 2016, 6:00AM 12 Comments

Comments from our readers

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