Churn battle: Ballantyne v Everitt

Partners Life managing director Naomi Ballantyne took issue with the FMA’s latest report into replacement business.

The FMA said it was concerned that advisers were chasing high upfront commissions and incentives, to the detriment of clients. Many advisers were not aware that could create a conflict of interest.

But Ballantyne said it was not the incentives themselves that were the issue – rather “individual morals” driving “poor behaviours”.

But FMA chief executive Rob Everett rejected that outright and said there were clear signs it was commission models that were the problem.

“Insurance providers cannot shirk responsibility for the behaviour of advisers that is a direct result of the incentives designed by those same providers. We point to the data and findings in our report as clear evidence that incentives are influencing advisers’ conduct,” he said.

“We have been raising these issues since 2015 and we’re disappointed to see signs that the industry continues to disregard the interests of the NZ public and consumers.”

He said the industry needed to take more responsibility for aligning its incentives with consumer outcomes and managing the conduct and practices that resulted from that.

“The link between incentives and replacement activity is clear. Among the advisers we looked at there was no evidence that they were taking their obligation seriously.”

He said, while the 24 advisers reviewed as part of this stage of its inquiry into churn, the FMA was able to take no comfort from the findings in the report.

Insurers were encouraged to rethink their “unusually high” upfront commission structures.

A spokeswoman for Asteron Life said it was committed to sustainable and affordable life insurance for customers.

"We encourage advisers to move to hybrid models with lower u front commissions and higher renewals. We believe that these lead to better support and service and improved customer outcomes, and over the past few years close to 50% of our business has been written on these types of commissions."

Fidelity Life chief executive Nadine Tereora said her firm had already reviewed its "adviser recognition programmes".

"Qualification for our main recognition initiative includes quality (retention) criteria, not just sales. Fidelity Life expects the independent financial advisers who advise on our life insurance products to always put their customers’ interests first – this includes disclosing remuneration and incentives in accordance with legislation.

“We are taking this FMA report extremely seriously. However, in our experience the vast majority of advisers do place their customers’ interests first."

Trevor Slater, client director for the Financial Disputes Resolution Service said the report would have had a better response from advisers if it had a more balanced view and mentioned the positive findings from the FMA investigation.

Comments from our readers

On 29 March 2018 at 4:06 pm Adviser1 said:

Insurance manager works for a bank, is paid a decent salary and a company car, has performance based targets to write $10K of API per week selling only one product to keep their job - vs commission only adviser with no selling targets who access to a range of products - hmmmm we only seem to be looking on one side of the fence here Mr FMA?

On 2 April 2018 at 9:30 am seandnz said:

What about bank managers and bank staff and CEO's are they not incentivised with bonuses and internal rewards?. Most of them get rewards and/or bonuses? are these disclosed every time a client walks in the bank? What about real estate agents, do they get incentives for performance? the fact is most people get incentives in one way or another, they are just dressed differently and called different names.

I think the FMA is short sighted and are not taking a broader and balanced approach to all roles in the financial services, not just advisers. I can say this because I am not an adviser.

24 Advisers reviewed, out of how many advisers in the industry, how many complaints did they actually get? I am sure complaints about the banks are far greater, why doesn't the FMA grow some and tackle them as well.

On 3 April 2018 at 10:31 am Davet said:

If I am well remunerated by commission on settling a contract with any insurer I feel I have been fairly compensated for my work. Being offered a free trip to Hawaii or elsewhere feels like a bribe. For me these soft dollar incentives need to go.

On 4 April 2018 at 12:07 pm Brian W Brown said:

when i first started in the industry i qualified for my first overseas trip after 7 years and qualified for a few others along the way with the main provider i placed the bulk of my clients with since there was very little between the best and worst companies back then.33 years later i havent been anywhere near qualifying for an overseas trip for the last 8 of those as all my time is spent looking after my book of clients that are still in the main with that same one company.Does that company reward me for being able to keep those same clients on that companies books for so long ? NOPE !!!

On 4 April 2018 at 12:25 pm perryb said:

Recently i had a local bank try to replace a policy i wrote with their cover. there was no replacement policy document and the clients had no idea what products they would miss out on compared to the bank product. i supplied ratings and wordings on the products covered and quite frankly the banks rating was nothing short of terrible. i approached the bank manager and asked how they could replace the cover i offered with their cover as it was so poorly rated.Brokers listen to this, he said they dont have to tell them what they will miss out on, ONLY what they were recieving. come on FMA, when are you really going to supply a level playing field. They too have incentives, get real. perryb

On 4 April 2018 at 12:29 pm Donald said:

Davet, therefore if in the best interests of your clients you have been utlizing a particular insurer due to the quality of their products and benefits and you had done sufficient business with them to qualify for their overseas conference enabling you to listen to quality speakers, learn from industry leaders and socialise with other achieving advisers, while being hosted by your chosen insurer you would naturally decline. Like the Tuis advert, "Yeah right".

On 4 April 2018 at 1:11 pm I was wondering said:

I do not take upfront commission as I am building a long term business and have been doing so for 17 years. Increases to upfront commissions come directly from the Insurers so they only have themselves to blame for high upfront costs. One CEO candidly admitted that it is not upfront commissions that push up premiums but their own internal costs! I have no control over this. So it doesn't matter who I put my business with as all of the companies are going somewhere. If they stop the trips it won't change how and where I place my business. The majority of the advisers that I have been to overseas conferences with have been in the industry for some time and are not overnight wonders.
I am heartened to see that some of the Insurers are now offering incentives for advisers to take level commissions. This may eventually become the norm and advisers will realise the value of a strong cashflow underpinning their business activities. Many Christchurch advisers owe their business survival to strong renewal streams.

On 4 April 2018 at 2:51 pm Denis said:

@Donald - lots of us don't participate in the soft dollar stuff like overseas trips and competitions. I'm just not interested. I'd rather have my holiday time with family and friends.

On 5 April 2018 at 8:56 am Backstage said:

The report selected a sample of 24 advisers. I cant see how Naomi's view differs from Everitt so much. It outlines the FMA's expectations. It draws conclusions from the sample of 24. It shows 1 adviser could have churned for a reward. It suggests that the structure of distribution established by insurers encourages poor practice. It states the obvious issues around replacement and how a consumer may be affected. My opinion is whilst some of the points that dropped out could be good, like better record keeping it still hasn't definitively demonstrated that commission leads to bad behavior. Someone who has studied qualitative and quantitative research should be employed to do these things correctly. Proper sample sizes should be chosen and in addition demonstration through statistical analysis should be made to demonstrate clear relationships should be made before constructing such reports. To me these types of reports start out with a hypothesis (I am being generous) and then they go looking for evidence to support a bias. I had a client who is in Civil Construction and purchases loads of concrete pipes. One supplier flew him to a trade show in Las Vegas, do you think his choice of pipe quality was determined by the trade show. Very unlikely as the consequences are to high if this was the case. Most reasonable advisers act with care as they actually care about their clients and they are in this business for a client relationship not a transaction.

On 5 April 2018 at 9:43 am Dirty Harry said:

urgh. Going on holiday with a bunch of insurance guys...
Hey PerryB. When Everett said PTICF means different things to different people.... that's what he meant. Just wait for the FMA report into the 'incentive structures' of QFEs, currently underway. Probably not good management releasing the so-called 'churn report' before the QFE report was ready - should have come out together.

On 5 April 2018 at 10:10 am Davet said:

Donald I share Brian's view, times have moved on and no matter how you justify this the main criteria for qualification is volume. In current world we work in I would be embarrassed to have the bulk of my production with one supplier. Can you not see the obvious confiict of interests that now apply? I note today AMP leading the way by ceasing these junkets - top marks to them.

On 5 April 2018 at 11:09 am Paul J Burns said:

Who needs the anachronistic and irrelevant 10 Commandments (to govern our behaviour and desires), when we've a myriad of government agencies and bureaucratic busy bodies forever trying to outdo each other - with their multitudinous codes and bylaws?

On 6 April 2018 at 11:52 am retired blogger said:

How would one categorise the lure of a top job at a BEOT ?

The BEOT certainly seem to offer incentives

One does not have to look far to see an ex govt minister or ex FMA staff member who is now in a high level job at a BEOT

somehow it just doesn't look right

On 7 April 2018 at 2:26 pm JMa said:

Does Naomi Ballantyne think we're that stupid to believe that financial incentives to write business do not influence outcomes? Studies across every field of endeavour show clearly that money motivates - in fact, it's the whole premise of capitalism! Yet somehow we think this won't apply to us!! [By the way, initial commissions in NZ are the highest in the world]. C'mon Naomi - we're not that stupid. And I know you're not that stupid to believe it either.

Churn battle: Ballantyne v Everitt

A war of words has broken out between Naomi Ballantyne and the Financial Markets Authority CEO Rob Everett over the issue of insurance replacement business.

Wednesday, March 28th 2018, 8:23PM 16 Comments

Comments from our readers

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