Russell Hutchinson
Russell Hutchinson
On one side of the debate are some fee-only purists. Some defenders of commission see any criticism of it as treason, and any fee as the thin end of the wedge.
Is a well-regulated and efficient insurance market compatible with the payment of commission?
If you consider the UK to be a well-regulated market, then plainly ‘yes’. Commission is paid at rates comparable to those in New Zealand, although soft commissions of the kind recently seen are rarer, it is far from the current levels in Australia, or those that are advocated for.
Another reminder that conduct is about more than just one thing – more than commission, more than replacement, more than disclosure, more than record-keeping. That’s why a whole new regime, law, regulation, code, licence conditions, and conduct are all required. Use commission as a sole yardstick and lots of direct and vertically integrated insurance is left out of the picture.
If one is worried about value, then you should look at the product as a whole – and in particular the ratio of claims payment to total premium. That has the advantage of being applicable no matter what the distribution mechanism for a product is. It applies equally well to products sold direct as it does to those offered through financial advisers.
But relying exclusively on commission is to fall into the trap of allowing it to be defined as a proxy for the cost of advice on insurance. That would be a shame. As it depends on what kind of business you run.
For some, their commission doesn’t pay for any advice. Several services give no advice and are funded by commission. Most adviser businesses are a mix of advice and non-advice services. Clients may receive value from their insurance adviser between advice engagements. Some parts of commission are paying for administration, news, and access to service when needed. Equally, some adviser services are better suited to being paid for with a fee than commission. Offering a claims service to non-clients? Charge a fee. Providing risk management advice? Charge a fee. Helping someone who has been declined cover? A fee might be best.
Pragmatism and open-mindedness might be the best approach for navigating a rapidly changing world.
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