How you get paid

There are two sides of the coin when considering the possible effect of commission and incentives on advice when you run an advice business. This article is about how you get paid, the next will be about how you pay your advisers.

Monday, February 11th 2019, 11:20AM

by Russell Hutchinson

Russell Hutchinson

I would just like to acknowledge those advisers that feel offended by the idea that commission affects the advice that they give.

Regular readers will know how I feel about that, and if you don’t, you can read my last article on the subject. This article is about looking at your income strategy, and how you remunerate your advice staff, while holding in view how regulators see the effects of commission.

Receiving commission can be seen as having an effect on which companies would be selected. I don’t know any adviser that slavishly selects only the highest commission product with no regard to quality or price.

I think a cursory glance at the gross sales by companies in the industry also suggest more is going on than that.

Surely, the highest commission payer would be getting all the business, if that were true. The fact is – they aren’t!

But in the absence of any other defined means of choosing the product provider, it can look like commission terms play a major part.

That’s one reason why having a clear policy on how you choose product providers is worthwhile.

This isn’t a naked pitch for you to use product research, that is just one of a number of factors you may use to select product providers, including the following:

Company reputation
Service
Claims paying
Technology
Price
Product design
Underwriting process / rules

Elements of the remuneration you receive from the insurer are now coming under much more scrutiny. Although most companies now just strike a commission rate with you, some still have volume-based incentives included in the commission documentation.

Those volume-based incentives are not permitted in some markets, and may also be something targeted to remove from commission-based remuneration.

I know that for those advisers that do receive a volume incentive, it is more a recognition of the volume of business the advice business does – usually by virtue of its existing scale, rather than as an incentive to direct business from one source to another.

However, you may choose to act in advance of regulatory advice, and remove these legacy arrangements from your agreements with insurers.

Tags: Commission Russell Hutchinson