by Susan Edmunds
It found insurers spent $34 million on these incentives over two years – more than half of which went on trips for 800 advisers.
FMA director of regulation Liam Mason said it was not the amount of the incentives that bothered the regulator but what was incentivised by their structure.
Registered financial advisers do not currently have the AFA code of conduct requirement to put clients’ interests first but they are required to act with care diligence and skill.
Mason said the incentives were setting advisers up to fail on that count.
And he said, once all advisers were required by law to give priority to client interests, many of the schemes in existence would become “pretty untenable”.
The structures in the market at present should stop, he said – and insurers had a short window to fix the issue before they were compelled by legislation or regulation to do so.
Rod Severn, chief executive of the PAA, said the focus on the law changes, the new code of conduct, and the Royal Co,mission of Inquiry into misconduct in Australia were suffocating the good news stories about the work advisers did.
“New Zealanders are better off by around $1 billion per year of policy payouts, people are able to buy homes due to mortgage advisers, and people are getting quality investment advice thanks to financial planners. We shouldn’t lose sight of this.”
IFA chief executive Fred Dodds said, if insurers were to spend half of the $5.5m the FMA found they allocated to professional development incentives over the two years, they could have helped all RFAs to complete level five qualifications.
Mason said the FMA wanted insures to look at the incentives schemes and what was being rewarded. They should be encouraging better customer service and ongoing contact and advice, he said. “That’s more likely to produce better client outcomes and create less conflict for advisers.”
The FMA had a meeting with insurers on Wednesday to set its expectations.
Asteron Life said it had started an in-depth review of sales incentives for insurance advisers.
“Life insurance advisers play an important role in providing expert independent advice to customers and our role is to work with advisers and ensure they are appropriately trained and equipped to offer our suite of products that best meet customer needs.
“Asteron Life supports fair compensation for advisers for the important and detailed work they do. Our review therefore will look at how we can reward, recognise and provide professional development opportunities for advisers while delivering good customer outcomes. The review will be carried out in collaboration with life insurance advisers.”
Sovereign said it welcomed the report and would consider its findings carefully to ensure the design of its recognition programmes continued to deliver good customer outcomes.
Fidelity Life said it would comment further on Thursday
The Financial Services Council said it was an important conversation to have.
“Ultimately the way companies choose to structure their remuneration packages is a commercial decision and one that will differ from company to company.”
Chief executive Richard Klipin said the FSC supported the request to consider the nature and value of soft commissions to ensure they supported good consumer outcomes.
“The key issue with remuneration is clients’ right to know the who, what and why of the advice they are receiving and it’s linked to remuneration at all.”
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