Changes to commission payments in new agreements

Insurers revamp financial adviser agreements which may disrupt some retirement plans.

Monday, August 29th 2022, 6:00AM

by Jenni McManus

To ensure they comply with the new licensing regime under FSLAA and the FMA’s expectations for the financial advice industry, insurers have been rewriting their financial adviser agreements over the past few months.

Among the most recent is AIA, and advisers spoken to by Good Returns say the new AIA agreement is similar to those they have seen from other insurers.

AIA’s agreement will apply to all products issued after September 5 this year.

The biggest changes are around the payment of commissions to unlicensed advisers and the ability of the insurer to effectively take over the clients (and commissions) of advisers who become unlicensed, decide to leave the industry or cease to work for a licensed FAP. AIA will then and arrange for these clients to be serviced by another licensed adviser.

AIA says it will do this only after giving the unlicensed adviser a “reasonable” opportunity to sell his or her portfolio or make alternative arrangements to ensure their clients are “appropriately serviced”.

On the commissions issue, AIA says if advisers cease to be licensed or engaged by a licensed FAP, it “may” stop paying commissions on products issued after 5 September.

“Ensuring good customer outcomes will be our primary consideration when determining if commission will cease to be paid should you become unlicensed,” it says in a note to advisers.

“It is both the FMA and AIA’s expectation that your clients will be appropriately serviced by a licensed financial adviser at all times.

In this regulatory environment, it is no longer appropriate for an adviser to continue to receive commissions when they are not appropriately licensed and cannot provide ongoing client care.”

AIA says the change will not impact on commission arrangements for products issued before 5 September 2022.

In the past, so-called renewal commissions were paid on an ongoing basis to advisers regardless of whether they were providing service to their clients. Whoever initially wrote the business would continue to get the commission, even if another adviser was now providing the client service.

According to one adviser, the term “renewal” has fallen into disuse as the FSLAA regime is implemented and these payments are now known as “service” commissions.

So, to receive a commission in the new environment, advisers must be licensed and providing an adequate level of service to their clients.

Most advisers appear to be happy with the changes, with some saying they fully support the idea that those doing the client work should receive the commission.

But Jon-Paul Hale, a financial adviser and owner of Willowgrove Consulting, predicts not everybody will be delighted. “[The changes] will significantly disrupt the plans of retired advisers and those who thought they’d ride off into the sunset” with commissions intact, he says.

The new licensing regime comes into effect on March 15 next year and from that date, only fully licensed advisers can work in the industry. Last month the FMA warned that if advisers wanted to meet this deadline, licensing applications needed to be submitted by the end of September.

Tags: AIA