Advisers told: Get ready for major change
The report, released on Tuesday, found widespread issues with the sector. Sales were being prioritised over customer outcomes, there was little oversight of adviser behaviour and commission structures had the potential to deliver poor results for clients.
FMA chief executive Rob Everett said the industry needed to fundamentally rethink the incentives given to sales staff and intermediaries.
"In our view high upfront commissions are not acceptable as they drive poor conduct and can result in poor customer outcomes," the report said.
Commerce Minister Kris Faafoi said Cabinet had agreed to get rid of sales incentives in the industry that were driving behaviour that was not in the best interest of consumers.
Asked whether that meant a ban on commission, his office only said: “Advice is being fast-tracked and will be consulted on mid-year.”
Partners Life chief executive Naomi Ballantyne said the report was sad. “That’s what the regulator found about the industry that I love. I agree 100% with their focus on conduct and good outcomes for consumers. I agree that is something that the industry should be held to account for and should be taking seriously. We think we always have.”
She said insurers had not yet received their individual reports about the concerns pertaining to their businesses. “We know we’re not perfect but we think our focus is in the right place.”
Richard Klipin, chief executive of the Financial Services Council, said there would be wholesale change for the industry. “[The report is] a pretty confronting document that shines a light on the sector.”
He said it was too early to tell how adviser businesses would be affected. The whole sector was going through major change, he said, and this was just one component. He said it was not possible to rule out significant change for advisers, though it was also important not to be alarmist. “Whether we are product managers, advisers or service providers, we need to be geared up and ready to face into some fairly significant change.”'
Ballantyne said the issues highlighted around sales incentives and commissions were not new. The new advice regime should address many of the behaviours that were perceived to be created by the incentive structures, she said.
Regulators around the world were grappling with the right remuneration structure and commission level, she said. “our regulator hasn’t given us an answer to that. We are working with them to get an understanding of what is the right outcome in terms of incentivising the right behaviour and more importantly making sure clients still have access to advice.”
Most New Zealanders did not think they needed insurance, she said, and it had to be sold at the recommendation of an adviser, most of whom were not aligned to a product provider.
“You have to work out how you pay for that, otherwise you end end up worse off where no one is selling life insurance and no one is buying it.”
She said she felt where the industry had settled was the already the right solution but was keen to be part of the discussion to determine what would be appropriate in future.
Insurance People head of client engagement Katrina Church was also critical of the commission focus.
“Is it commission that is the issue or is it how commission is given at a level to all even if they clearly do not arrange the minimum of a fact find, a statement of advice, an underwriting process, an audited business replacement process, and a claims support process worthy of acting in the client’s best interest.”
Katrina Shanks, chief executive of Financial Advice NZ, said: "We welcome the suggestion that qualifying criteria for soft commissions be reviewed and are focused on improving customer outcomes – whether for internal staff or intermediaries; this further supports consumer interests. We are supportive of a review of intermediary commissions to ensure the model is relevant and sustainable. It is essential that commission models are in the best interests of consumers, but also ensure that the life insurance advice sector can continue to provide this valuable service to New Zealanders."
Paul Smeaton, chief executive at Asteron Life welcomed the report. “Many of these recommendations will have a substantial impact on the way we do business with advisers and we look forward to working with them as we take steps to improve people’s trust and confidence in our industry.”
Adviser Graeme Lindsay said the report’s criticism of some products such as credit card repayment insurance was valid. But that was not the domain of advisers, who would be challenged if they sold poor products to clients, because of the competitive nature of their industry, he said.
He said the criticism of commission was done with little justification. “The great majority of advisers are doing a fine job for their clients.”
Fidelity Life referred questions to FSC.