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Philip Macalister
Philip Macalister
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How ‘bout those commissions

Friday 6th of June 2008

A story this week on commissions and soft dollar incentives paid to risk advisers caught my eye.

The story, it's here, is based on the independent report prepared for Tower shareholders in respect to GPG's partial takeover offer. The report is written by Grant Samuels and is strongly critical of the commission levels paid to advisers.

This should come as no surprise as New Zealand pays the highest commissions on life products of any country in the world (so we are told).

What is worth noting is that it isn't Tower making these comments, rather it is Grant Samuels.

As I understand it the company has been looking at a number of other life companies and had already come to this view about commissions before it walked in the door at Tower.

(This, I will note is in line with last week's Blog, which mentioned changes in the ownership of some companies in the financial services sector in New Zealand).

One of the issues for the life industry, and it is not a new one, is the commission amounts being paid. While there has been a bit of a competition in recent years to see who can give advisers and brokers the most, I hear that some of the leaders in this field have started to pull back.

This is good news and is something that is well overdue. It's time that commissions became more realistic.

Just for the record I'm not against commissions per se, rather the issue is having them at sustainable levels.

Comments (7)
Austin Fisher
I work for a provider in the investments area and am exposed to the wants and needs of many Advisers who make their living primarily through life insurance. Their stance is that KiwiSaver and investments generally are irritating and not worth their while because the commissions are so low. Low compared to what? - Life insurance! Life insurance commission levels are seen as the benchmark in commission payments generally across all financial products. I don't blame an Adviser for specialising in life insurance. Good on him/her! Providers have made mistakes in the past by trying too hard to replicate the life commission levels inside investment products. Nobody thanks you for it in the long run. Advisers tend to forget the upfront commissions ever existed - and clients get rubbish returns and complain. Overall, I have no stance on the level of life insurance commission, I just resent it being used as a bargaining tool when talking about investment products. It's like expecting an aardvark to lay a golden egg. It's highly unlikely because it would be very difficult to engineer manually and it is a completely different animal.
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16 years ago
Mike King
Phil - who's "pulling back"? I've recently had offers of increases from two large companies. One was introduced "temporarily" last year, but has since been made "permanent". This week, another issuer is offering a furtehr 10% on base commission for a period of 4 months. Once offered, I believe companies have a great deal of difficulty in winding them back again. "Sustainable levels" - who is better placed to determine what this actually is than the companies who pay it? The commission levels offered are corporate decisions, made with a view to their profitablility. The shrinking (and now further threatened) cohort of advisers & brokers is a likely factor in the increasing inter-company competition for market share - hence escalting commissions being offered. Personally, I do not chase, or accept, the soft-dollar stuff (who wants a two week trip with a bunch of insurance agents????). I'd rather have it paid as assessable revenue, through commissions, to assist in dealing with constantly rising overheads.
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16 years ago
douglas mckeown
I find it very intriguing over the last 30 plus years ive been in this business that proponents over reducing commission have never or rarely been in the business of selling Insurance.If they have they didnt survive or theyre from some other well meaning source with a salary of six figures or more. We earn every cent we get for commission and the overheads of running an office,staff etc are no different than any other Business. What is with these people who go on about commission?.....why dont they come and work in this Business and see how quickly they change there tune. Clients dont mind us getting commission.If this system changes all thats going to happen is people will be even more underinsured than they are now and we wont be able to afford being in Business. What is a realistic commission and on what is the rationale for it "being good news and long overdue?"
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16 years ago
Brent Lewis
<p>Hi</p> <p>I'd like to add my 2 cents worth.</p> <p>Everyone seems to like pointing the finger at life insurance brokers/agents as being overpaid, under skilled dinosaurs.</p> <p>Well as one of those dinosaurs, I'd just like to say, when one of my clients is ill and can't work or can't afford surgery, it's not some analyst or government bureaucrat they turn to. They thank their lucky stars, that I came along.</p> <p>This year two clients have died. Ask their families, if they think I'm overpaid.</p> <p>Selling life insurance, isn't for the average paper shuffler, it takes determination, drive and the guts to do what's right. Only 20% survive their first five years.</p> <p>For the professional 20% out there. Stand up and take a bow, because what we achieve, is so powerful and adds so much to the lives of our clients and society.</p> <p>Overpaid? I don't think so.</p>
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16 years ago
Mike King
I'm not so sure the general/health products ARE that much lower in commission, at (ranging around) 20% annually. The up-front, capitalised commissions paid for life/income contracts appear larger, but a pollicy that stays on the books for 7 years or so becomes highly profitable (absent any claims of course!). There is always a lot of talk about moving to this "sustainable" commission method of level annual %age. Sure, once a broker has a sizable book of level commission policies, all is well. It's the challenge of migration that needs to be addressed by the companies (viz Colonial). However, it doesn't make the premium for the consumer any lower, so it's an intra-industry issue and has little to do with the consumer. What we have in the Grant Samuels report is yet another re-statement that shareholders require a greater return, and that these guys would do it at the expense of its advisors and brokers, but that would be a self-defeating act. What business can survive without distribution? Would they have a "tied" adviser force? Would they rely on internet driven sales? Would they go direct telemarketing, selling "off the shelf" solutions, on a no-advice, no-liability basis? The only model that really works is face-to-face advice. So, which company would "lead the market" and start REDUCING commissions? They'd have to have the "perfect" product or their net NB would fall away pretty sharply.
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16 years ago
Mike King
Ed - Pinnacle Life's suite of products has significant limitations - max $800K life &amp; TI, no trauma, no DI. Is there a level premium option? However, it must be highly profitable - the premium comparison for a 50 y/o male non-smoker (on YRT rates, presumably), shows miniscule difference: Pinnacle $96.52, Fidelity $97.27, Asteron $98. Where's your purposrted 15% - 20% gap to be found? So, someone's making a lot of dough if a Pinnacle Adviser is getting 1/3rd the commission these other distributors pay.
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16 years ago
Mike King
...Ha! And now, the very subject of the Grant Samuel report, Tower, slashs premiums in several age groups and a general reduciton overall. Did they achieve this thorugh reduced commissions??? Far from it. The press release says they saved money through faster &amp; more efficient office processing systems. So, commissions, which if discounted to ZERO generally only save 20% to the consumer (whether paid up-front or spread), are clearly NOT the driver behind increasing premiums.
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16 years ago
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