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[The Wrap] Soothing words from the minister

It was heartening to hear the Minister of Commerce Kris Faafoi speak this week. The message I took out of it was that the Government isn't going to have some knee-jerk over-reaction to what's come out of Australia recently.

Friday, March 15th 2019, 6:20PM 3 Comments

And that's good news.

Some would argue the regulators have been more scare-mongers on what's been happening rather than the politicians.

Faafoi acknowledged that New Zealand was different to Australia and we don't have the same culture around behaviour and conduct compared to the other side of the Tasman.

While he "couldn't put his finger" on why the two countries had different attitudes it does support the view that New Zealand won't just copy Australian regulators.

That's good as we have also seen this week that the Australians have over-reacted and are now back tracking on things like bans on commission for mortgage brokers.

The other point to take from Faafoi's comments are that commission wasn't necessarily a bad thing. 

His concerns were more around incentives and soft dollar commissions. It's pretty hard to argue against this. The writing is on the wall so manufacturers should just get on and make changes rather than waiting to be told to do so.

It is reassuring to hear the minister make comments like "we are not out to wreck that system" and it's time for a "mature conversation" and finding "a balanced approach".

He sounded genuine and this sort of language should give the industry some confidence that whatever happens will be sensible.

Perhaps the biggest worry is that Faafoi gets promoted into Cabinet and some other MP with a different agenda picks up the Commerce portfolio.

Tags: Opinion

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Comments from our readers

On 21 March 2019 at 3:53 pm Murray Weatherston said:
While the Minister and regulators are making "soothing noises about commissions not being necessarily bad, they cleverly aren't saying anything about the level of those commissions.

Life insurance is the normal whipping boy, with a lot of rhetoric about rates of 200% and more.

The Minister and officials have not opined about what they think is an appropriate level.

If for example, they were simply to say that since in Australia from next year, first year commission will be restricted to a maximum of 60% - therefore we think NZ should be maximum 60%, then I reckon there would be a universal outcry.

It is often completely overlooked that Commission levels are actually set by the insurance companies - not the life agents. Surely these life companies have been run sensibly (none to my knowledge have financially collapsed) so how could any official say that the current rates are too high - do they know more about running an insurance companies? I very much doubt it.

Re soft commissions, I was very surprised that the life companies rolled over so easily and cancelled future overseas trips. A lot of industries have incentive conferences and rugby tickets etc. Probably fewer than 15% of life agents ever qualified for them - ie 85% didn't, and yet they became the target.

Free markets usually end up providing the most choice and the best products for consumers.
On 22 March 2019 at 8:12 am JPHale said:
Completely agree Murray. The insurers have taken the opportunity to kill off the trips, they're costly and a hassle to plan, run and manage.

The FMA report demonstrated two things, soft dollars were expensive and they didn't sway the advice of quality and appropriate products.

So the business decision is why have the added cost and hassles, when they don't change the advice outcomes.

We know trips have the perception of driving business, more a case of aligning business when there is a competitive market.

Take the trips away and we’ll likely see little change in the placement of business on the whole.

We may see more of a spread across companies, though habits and ease from familiarity are likely to result in much the same distribution.

Time will tell.
On 22 March 2019 at 4:53 pm Murray Weatherston said:
Apposite commentary from commentary in ifa Bulletin

Risk by Adrian Flores - March 22, 2019

Life commissions ‘good for consumers’, says licensee

A licensee head has called for life insurance commissions to be retained, arguing that they are “good for consumers”.

The Hayne royal commission final report recommended to ultimately reduce the cap on life insurance commissions to zero unless there was “a clear justification for retaining those commissions”.

But in a contributed blog, Synchron director Don Trapnell said he had a clear justification of retaining life insurance commissions.

“Life insurance commissions are good for consumers. Yes, good,” he said.
“What happens when you take away life insurance commissions is that consumers do not seek out and pay for life insurance advice.”

Mr Trapnell cited the experience in the Dutch market where commissions were banned.

He said that in the Netherlands, advice is now only sought and paid for by the wealthy, not the everyday consumer.

Because it is restricted to those who probably need it the least, Mr Trapnell argued that those who probably need life insurance advice the most have to resort to getting advice over the back fence and purchase products online or over the phone.

“We all know from the royal commission how well that goes. Not well,” he said.

“Ban commissions in Australia and you can expect similar outcomes – many everyday Australians just won’t be able to afford to pay, or would be unwilling to pay for advice upfront from their own hip pockets.

“They will therefore have to be content with the cover they have in their super funds, if any, take life insurance tips from their mates and buy direct or go without. How is this a good outcome?”

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