Commission model swaps one problem for another: Ballantyne

Financial Advice NZ practitioner director and PAA chairman Bruce Cortesi and industry consultant Darrin Franks have developed a new remuneration model concept for advisers.

It would involve advisers receiving commission based not on annual premiums but on up to 1 per cent of the total sum insured.

The maximum fee would be linked to the persistency the adviser had, reducing the chance of churn.

Trail commission would remain but would be paid to the adviser providing the service, not the adviser who placed the policy.

Partners Life managing director Naomi Ballantyne said there was no shortage of ideas around replacing the current commission model with other models “which all have conflicts and issues just like the current model does”.

She said it would not make sense to base commission on a sum insured because it would mean more income for advisers who dealt with younger clients, for whom it was more affordable to insure larger amounts.

When commission was paid on premiums it took into account the level and mix of cover, she said. “I don’t see any logic in doing that. I don’t think it fixes anything.”

She said it could be suggested that such a model could encourage advisers to sell more cover than a client was needed. “It doesn’t take away the potential for a conflict of interest.”

She said it was most important the the client understood why the adviser had made their recommendations and could see that it was right for them, not just for the adviser or salesperson.

“I personally don’t think there is a need to change the commission model, there is just a need to regulate the management of the conflicts – which would be required for any remuneration model.”

At Fidelity Life, Adrian Riminton, chief distribution officer, said it was important to ensure New Zealand had a thriving community of independent financial advice businesses, "which in turn ensures more Kiwis have ready access to advice and insurance protection.We welcome innovation in the market and look forward to exploring this and other options that lead to sustainable businesses and great customer outcomes.”

Comments from our readers

On 18 July 2018 at 8:33 am Backstage said:

Have to agree with Naomi above, I can not see how it could work actuarially in the first instance. This was the way we were paid with WOL, I remember being paid $35 per $1,000 of cover. That product had what was meant to be a savings element that could have helped to fund the enormous commission. The idea is not new and does not move toward managing potential conflicts.

Commission model swaps one problem for another: Ballantyne

A new commission structure proposed for the industry is unlikely to solve any of the perceived problems with the existing one, an insurer says.

Wednesday, July 18th 2018, 6:00AM 1 Comment

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