Dealer groups face future without overrides

Some dealer groups may have to rethink their value proposition as product providers move away from volume-based commission structures.

Wednesday, August 7th 2019, 6:32AM 10 Comments

AIA is moving to a new commission structure it says will be more straightforward.

It is not changing the total amount of commission paid to advisers but is altering how it is paid.

“We’ve taken a view that volume and persistency related commission bonuses can be unnecessarily complex and so we are offering a flat initial commission rate and the choice of either a standard option or a pendulum option,” spokesman Craig Glover said.

“Our new AIA Living commission structure payable to advisers does not include any production or other volume related bonuses. We have existing contractual arrangements in place with some advice groups, which include volume related payments in some cases. These existing contractual arrangements will remain in place whilst we work through future changes with our partners.”

Asteron Life is also removing its production bonus.

It will increase the initial commission paid to advisers.

"Our FlexiRate options are also being expanded to offer more options for advisers, including the 150% upfront and 20% servicing commission which became a permanent option earlier this year. This rate has been available on and off since 2017, but we are now making it permanent because we see it as a really viable option for advisers to develop sustainability in their business," said Graham Hill, executive manager life distribution.

"We want to make sure we are working with advisers to deliver great customer outcomes, while still remunerating advisers fairly for the work they do. Advisers working with us are able to reduce their commission to offer customers discounts, but this has only ever been possible on the initial commission and not the production bonus. Advisers will be able to receive the same remuneration for new policies, but will also have greater flexibility in providing customers premium discounts on their life products if they choose to."

Volume-based sales incentives have been scrutinised by the Financial Markets Authority and Reserve Bank, which are worried that they drive poor outcomes for customers.

That was reiterated in a recent consultation paper on the conduct of financial institutions, which said remuneration tied to sales targets, either by volume or value, was “particularly problematic” because, as the target was approached, it created a strong incentive to sell a particular product.

But many dealer groups have historically operated on the strength of volume commissions paid on their members’ production.

Darren Gannon, founder of Newpark, said he expected all insurers to make similar changes.

He said dealer groups had not yet been told if or how their payments would be structured.

"I'm guessing – and nothing has been officially sent to us yet – that it's going to be paid on services provided to members."

He said a lot of advisers were part of groups and got value from that. "They are needed and valued in the marketplace. Fingers crossed no one does anything stupid."

He said a new payment structure for groups could more accurately reflect the work done to service clients rather than just place new business.

Insurance commentator David Whyte said AIA’s move was likely to give some dealer groups pause.

“What’s the value that can be attributed to the dealer group if they have to find other sources of income like charging fees for membership?”

Peter Cave, managing director of Lifetime, said it would be an issue for some dealer groups.

It would have less impact on Lifetime than other groups that relied more heavily on overrides, he said.

He said Lifetime was trying to negotiate a standard agency agreement with one remuneration structure for all providers.

Kepa and Share were approached for comment.

Tags: AIA Asteron Commission David Whyte insurance Lifetime

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Comments from our readers

On 7 August 2019 at 9:37 am dcwhyte said:
And to extend the theme of my question - advisers grouping together to enhance training, education, compliance, and systems support (no longer provided by product providers - as they do in Mexico and other territories) improves the delivery of good outcomes to consumers.

FMA/RBNZ "are worried" that over-rides "drive poor outcomes for consumers" but there has been evidence produced to support that this occurs - nor did Trowbridge, MJW, or any other similar report. No research-based empirical evidence - merely supposition, conjecture, and surmise.
On 7 August 2019 at 3:26 pm John Milner said:
Very good points David. I think they call that "shoot first, then ask questions".
On 7 August 2019 at 6:43 pm The Oracle said:
Being part of group helps me stay clear of becoming a tied adviser, provides tools to up skill, the friendships, so I enjoy what I do, and the mentors to help share ideas. I get a lot of support and value and would be very concerned to see this change.
On 7 August 2019 at 7:00 pm JPHale said:
Agree on David, the value of dealer groups isn't just about the quantified dollars and service.

There are many softer aspects that aren't factored in that you can't put a dollar value on.

And this is where there have been many adviser discussions on what's the value?

The answer is it depends.

Depends on the adviser and their need. An adviser looking to do less and get paid more is likely one to complain about dealer groups and ell chase a model that delivers dollars not development. The one looking to learn, grow, share and be a good adviser to their clients will find greater value with a good dealer group. And some will be about their friends and network is there.

And the many variations in between.

Dealer groups have a place in our future, potentially more so than present for the independent adviser.

As provider aligned solutions won't always suit and independence means advisers will avoid stuff too tailored to one provider.
On 7 August 2019 at 7:45 pm The Oracle said:
Being part of group helps me stay clear of becoming a tied adviser, provides tools to up skill, the friendships, so I enjoy what I do, and the mentors to help share ideas. I get a lot of support and value and would be very concerned to see this change.
On 8 August 2019 at 4:30 pm Ron Flood said:
The Oracle, yes, there are great advantages of being in a Group. The only change going forward, may be a requirement for you to contribute financially, rather than the Group receiving income from product providers.
The question will then be, am I receiving value for money, the same dilemma when deciding to belong to a Profession Body.
On 8 August 2019 at 7:58 pm The Oracle said:
Ron yep advisers shouldn’t expect everything for free, but surely cost of distribution hasn’t changed too much and providers need to, and should continue to provide support, or do we all go back to district offices with sales managers?
On 9 August 2019 at 9:21 am Mark Sheehan said:
The good news for the client is that we will see a reduction in premiums as a result of no over ride.
On 9 August 2019 at 9:38 am Amused said:
Production-linked volume-based commission payments such as group overrides are clearly in the FMA spotlight at present as is the conduct and culture issue of incentives.

You can’t cancel overseas adviser trips having deemed these to encourage or promote bad behaviour and be in the process of potentially reducing upfront commissions significantly without also now scaling back or removing group overrides.
On 10 August 2019 at 12:10 pm dcwhyte said:
@Mark - do I detect a note of cynicism in your post?

Hope so as the Australian Life Companies made no premium reductions once the commission levels were "stabilised" over the ditch.

It remains to be seen if any adjustments occur here.

But as the DG payments are not part of the retail product pricing structure, any reductions to consumers are unlikely to come about as a removal of the DG over-ride

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