Severn: Change focus of incentives

Insurance companies should put some of the money they spend on soft commissions towards promoting consumer education programmes, creating career paths for new advisers and educating existing advisers, the chief executive of the PAA says.

Monday, May 21st 2018, 6:00AM

A report from the Financial Markets Authority last week found that the industry spent $34 million over two years on soft incentives such as trips and events for advisers.

It said they seemed solely for the benefit of advisers.

Head of regulation Liam Mason said many of the schemes would be untenable once the Financial Services Legislation Amendment Bill passed and all advisers had a requirement to put client interests first.

PAA chief executive Rod Severn said, reading the report, he was reminded of his nearly 30 years in IT and “some of the wonderful incentive trips I have had the pleasure of winning….and thoroughly enjoying”.

He said large corporates in the financial services sector were no different from any other business trying to sell its products.

“The challenge however is that a large financial services company has the potential to significantly affect someone’s long-term financial wellbeing via incentives and bonuses that some unscrupulous adviser (or employee) may take advantage of to suit themselves rather than their client,” he said.

“It is this handful of advisers and employees that need to be removed from the market, not necessarily the incentive programmes.”

He said the insurance providers that had backed away from overseas trip incentives – the priciest part of the soft commission offer – had not decreased the premiums they charged clients.

“This would indicate that such ‘soft dollars’ are not necessarily reflected as a direct cost to the consumer. It is also interesting to observe one Insurer who stated in a working group that offshore incentive trips represented a cost of less than 3% to their bottom line.

“I am sure the insurance companies know which advisers, and employees, rort the system. They should be dealt with. By far and away the majority of advisers are doing the right thing and putting their clients first.

“Whilst $34m is a large chunk of money to spend on incentives and one could argue that the 9% of revenue should be put towards reducing premiums, I would like to see some of this money put towards promoting consumer education programs, creating career paths for new advisers, properly educating advisers via level 5 (or higher) contributions etc. This, I am sure, would be supported by the FMA rather than being investigated.”

Insurers indicated they would not change their systems as a result of the report.

Fidelity Life – which did not comment on the day of the report’s release – said it supported a model where consumers’ interests were put first and they could readily obtain independent financial advice working to high standards.

“Fidelity Life expects the independent advisers who advise on our products to always put their customers' interests first and manage conflicts of interest. We also expect advisers to disclose remuneration and incentives in accordance with legislation and in a way that is clear and easy for customers to understand.

“In remunerating advisers who advise on our life insurance products we need to ensure New Zealand has a thriving community of independent financial advice businesses which in turn ensures more Kiwis have ready access to advice and insurance protection.

“We are mindful of evolving expectations about our industry, and we are evolving too. Our adviser support programme, Black by Fidelity Life, is based on a three-pillar model emphasising education, giving back and recognition. The programme is constantly evolving and will develop over time."

Tags: Insurance Advisers Rod Severn soft commission

« Ballantyne: Partners keen for any purchase opportunityHealth insurance gets boost from workplace schemes »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment

© Copyright 1997-2020 Tarawera Publishing Ltd. All Rights Reserved