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Conduct, not law, best way to deal with commission: FMA

Financial Markets Authority head of regulation Liam Mason says the regulator would like to improve conduct in the life insurance sector to tackle poor customer outcomes, rather than regulating to remove commission.

Wednesday, August 8th 2018, 10:20AM 6 Comments

by Susan Edmunds

As part of consultation of the Financial Services Legislation Amendment Bill, the Ministry of Business, Innovation and Employment made it clear it does not back a ban on commission.

It was raised as part of the earlier FAA review process, and touched on by submitters to the bill.

It told the select committee considering the bill that a ban would only reduce access to advice for individuals who could not, or did not want to, pay for it.

"This option was included in MBIE’s Regulatory Impact Statement on the Review of the FA Act but was not a preferred option as it would reduce access to financial advice for those who are unwilling or unable to pay for it. Rather than banning or restriction commissions, the bill aims to address the impact of these incentives through universal duties of conduct and client care, and improved disclosure requirements.”

But that seemed a softer line than was taken by the FMA when it discussed the issue earlier in the year.

When it released its report on advisers' use of soft commissions, Mason said it was not the amount of the incentives that concerned him but what was incentivised by their structure.

He 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”.

Earlier, as part of work on replacement business by advisers, he had said high upfront commissions also needed change.

'One of the things we’d like to see is the providers themselves taking a lot at the model and whether there’s a way to reward good advice and not necessarily a model that’s quite so much about rewarding changing policies.”

Mason said the government had now made it clear via the FSLAB process that its preference was not to regulate for commissions at this point, but to try and address it through conduct.

"That remains our preference, that remains what we would like to do first.”


Tags: Commission

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Comments from our readers

On 8 August 2018 at 12:02 pm Tash said:
Can Mr Mason please explain the adverse insurance conduct brought about by commission and soft incentives that are not equally likely with a salary (which always comes with a target even if none is specificaly pronounced!)
On 8 August 2018 at 3:17 pm MAX62 said:
Quite right Tash!

Liam clearly has no idea what the problem is or if there is one at all ! and he could not regulate private sector remuneration / distribution models anyway at least not without spreading the net to all commission based operations in any sales sector in NZ.

The F&G sector is 90% churn and recently IAG took 70 of it's top Brokers to Fiji !!I guess that would be their last trip Liam ?
On 8 August 2018 at 4:17 pm Tony Walker said:
>The F&G sector is 90% churn and recently IAG took 70 of it's top Brokers to Fiji !!I guess that would be their last trip Liam ? < Whilst I don't disagree with the fundamental points made the example of F and G in terms of the 'churn' comment isn't the best example you could have
picked. F and G is limited to level commission rather than high upfront.
On 8 August 2018 at 8:18 pm Ron Flood said:
Tony. It just goes to show, that no matter how low the commission, churn still occurs.
On 9 August 2018 at 8:46 am Barry Read said:
The report on QFE replacement business showed that replacement happens with or with out commissioned sales and like the adviser report, it was mum on actual client harm.

I agree the focus should be on conduct or providers and distributors and action taken when potential or actual client harm is evident. The commercial terms should be left to the market to determine and consumers to choose how they access insurance advice or products.
On 9 August 2018 at 5:20 pm Tony Walker said:
Hi Ron >>Tony. It just goes to show, that no matter how low the commission, churn still occurs.<< surely the issue of 'churn' is around inappropriate replacement of business rather than moving from one provider to another. Appropriate replacement (substantially in the clients best interests) is to be applauded. Perhaps I am missing the point.

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