Insurance
Sovereign's latest commission deal
Friday 21st of June 2013
It is offering the commission on every rate-for-age TotalCareMax Life and all premium options for TotalCareMax Living Assurance and Total Permanent Disablement benefits submitted before the end of June.
Chief distribution officer David Haak said it was one of a number of targeted Sovereign campaigns implemented since 2007. “Going forward we will continue to roll out a variety of campaigns as a way of raising awareness for our product launches - and importantly confirm our commitment to assisting advisers to grow their businesses."
But consultant David Whyte said it was an unimaginative response from Sovereign to try to keep itself ahead in the commission war.
He said if Sovereign really wanted to help advisers grow their businesses, it would be better to offer higher renewals to enable advisers to better serve existing clients.
Whyte said whether churn was an intended consequence of the offer or not, it would happen.
“For mature advisers with a decent book of business, upfront commission exacerbates their tax problem. Younger, less experienced advisers might be swayed.”
He said Fidelity reduced upfront commission to 124% during his stint on its board and increased its new business market share over subsequent quarters by 10%.
“Sovereign offered an extra 10% commission to advisers and their new business market share retreated 10%. So operational support, quality of underwriting, systems management support, and product quality, all came into play as
influential support factors, as well as commission levels.”
Graeme Lindsay, of Strategy Financial, said there had been criticism in the marketplace from people who said insurers were paying too much commission. “The inference is that advisers are demanding it. I don’t think they are. It’s insurers scrambling for market share, trying to buy business. Professional, competent advisers don’t respond to commission bribes.”
He said it was an unnecessary move that would increase instability. “There’s no need for this. Advisers are there to do what’s best for their clients. This skews the market. I don’t respect it.”
Comments (19)
Mike Naylor
Bay Broker & Claire W - This is not a debate about total remuneration, as David Whyte says. Sovereign had the choice of increasing trails by x%, and thus increasing your income by the same amount.
By offering a short-term jump in upfront Sovereign is trying to induce advisers to give them the new business instead of that being placed with competitors. Or even worse - churn.
The problem with that for advisers is that even if, like the professional advisers you are, you do not place business on that basis you are still placed in a legally dubious position. This is because under consumer law you have a fiduciary duty to place your business with the firm which is best for the client. When the FMA comes to inspect your books, they will be naturally suspicious of any increase in your placements with Sovereign during this period. You are going to have to be able to prove on a client by client basis that the change in commission played no part in any decisions to place with Sovereign. You can't 'look at them again' - commission differences must have no part.
The world is different post regulation. Sovereign are still living in the old world. There were better ways for them to raise adviser awareness.
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11 years ago
Brent Weenink
Dr Naylor, the fiduciary duties you mention are actually higher than that. The paramount duty of any adviser/fiduciary is to actually avoid that conflict of interest to begin with. So its not enough to prove that an adviser wasn't influenced by [Sovereign]. That is irrelevant. Instead the law requires that an adviser avoid that conflict completely. In other words, placing oneself in a position to receive variable commission, is in itself a breach.
PS. Good job with your comments generally. Keep them up.
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11 years ago
Brent Weenink
@ Crystal Clear, the general law on fiduciaries has been in place for over 300 yrs. The NZ legislation against Secret Commissions is in fact dated 1908. If you want to go "old world" stop taking hidden commissions and start acting in your client's best interests.
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11 years ago
Ron Flood
BTW, please feel free to initiate a civil case against an adviser under the 1908 Act. It is hardly a secret to anyone that risk advisers receive commission so I dare say your case would fall at the first hurdle.
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11 years ago
Mike King
@btw - you seem ready to use the term "fiduciaries" - a little more freely than a court would. The legal definition of WHO has a fiduciary duty and what that imposes upon them is quite distinct and extremely onerous, and it does not apply in the case of an insurance adviser.
As to the Secret Commissions Act (dated 1910, in fact - are you conflating it with the 1908 Life Insurance Act?) does not apply when a client KNOWS his adviser is being paid a commission.
Quit this 'holier than thou' attitude, please.
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11 years ago
Ron Flood
bestwomen - Not your best work. I have just checked the Sovereign Total Care benefit analysis ratings supplied by one of the independent ratings providers for trauma, income protection and TPD.
Sovereign's ratings are on a par with Fidelity, Onepath and Partners life on all the above products except that Partners Life's TPD is rated higher.
It is a shame that some comments made on Good Returns go unchallenged when they are, in fact, untrue.
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11 years ago
Michael King
@ Dr Naylor said "under consumer law you have a fiduciary duty to.." Please, Dr Naylor, could you clarify this further, in particular the use of the word 'fiduciary'?
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11 years ago
Brent Weenink
@ Majella, you’re right as to the date of the SC Act (1910). However, that’s about the extent to which we agree. While this is not the forum for a comprehensive response, my understanding is that the general position is pretty accurately summed by the NZ High Court in Attorney-General v Aon New Zealand Ltd (2008) ... “In addition, since an insurance broker is the agent of the insured, the broker is the insured’s fiduciary and accordingly owes a fiduciary duty to the insured not to put him or herself in a position of conflict”. So, while you’re free to disagree, no, I don’t think I am using the term “a little more freely than a court would”.
@ Ron Flood, what a strange invitation. Why would you wish that on any of my past and present insurance brokers (none of whom have ever passed me details of their commission payouts)?In any event, I am far more likely to sue them under a breach of their fiduciary duties than the SC Act, which doesn't really afford me much relief.
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11 years ago
Mike King
@btw - point taken. It appears you have a legal background and I defer to superior knowledge. However, the SC Act refers to "corrupt" practices in keeping considerations secret or without authorisation of the principal.
That raises another question: the High Court ruling states that "the broker is the agent of the insured". I recall from early training, and things may have changed since 1990, but I was of the understanding that, at law, I am considered the agent of the insurer. Is it possible to be an agent to both? If so, is that not a conflict? And if so, then is our whole industry model illegal?
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11 years ago
Brent Weenink
@ Majella, I'm not in insurance so I don't know industry practice, but it depends on your particular set up and your broking contract as you could be either. If you're an agent of the insurer (e.g. a staff member) then, generally speaking, you don't owe any fiduciary duties to the insured, so really the fiduciary issue goes away. The conflict, in my respectful opinion generally comes when brokers get paid by one party (the insurer), but purport to act for another (the insured).
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11 years ago
Mike King
@ btw & Observer - thank you both for the clarifications.
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11 years ago
Ron Flood
bestwomen. Sorry if you thought I simply dismissed your your comments and solely rely on a third person's analysis. I have also 'drilled down' into the finer detail and the more I do, the more I find companies adding meaningless conditions to trauma cover in order to gain ratings.
One thing I can't dismiss however is your cavalier attitude towards claims paying ratings from S & P or A M Best.
I suggest you ignore these ratings at your peril. The Reserve Bank aren't ignoring it and I believe they are currently looking very closely at the financial transactions and relationships between insurers and their re-insurers.
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11 years ago
Andy Phillipson
Wow - some very passionate (heated) comments on here - and very educational. One thing that is highlighted is the general disparity in knowledge that we should all know (being an agent of the insurer being the most obvious one). There are people who know the facts, people that don't know the facts, people who THINK they know, and some who have no idea!
I believe, as an industry, we should all be revising what we have learnt in the past, and IMPROVING our education. And don't give me any of the current training that is available - clearly it isn't working. Neither is being in the industry for 50 years. We need to stay current, and stay accurate! Otherwise we will never be considered truly professional!
Then the issue of commission will be irrelevant.
Knowledge is knowing that a tomato is a fruit. Wisdom is not putting a tomato in a fruit salad!
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11 years ago
David Whyte
Point of order - AIG had lost their AAA status well before the bail-out, but the issue you raise there has merit. The nominated rating houses are paid fees by the clients they rate. Who guards the guardians?
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11 years ago
Brent Weenink
Re: SALs comments above... SAL, that's obviously quite a different interpretation and much narrower than I believe to be correct. Where did you get that test from (it looks vaguely familiar but I can’t place it)? I don't want to bog this forum down with a legal debate, but a quick reference would be helpful.
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11 years ago
Mike King
@ SAL - yes, can you please provide a reference to that opinion? It was my understanding too - that a Fiduciary can treat on behalf of a Principal and must not exceed his authority, treat in a way that is injurious to the Principal, or corruptly profit from the relationship.
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11 years ago
Broker Broker
@ Dr Naylor - To quote you "This is because under consumer law you have a fiduciary duty to place your business with the firm which is best for the client."
I don't think this is necessarily the case unless as advisers we signed something in front of our clients to state that we accept fiduciary duty.
As I understand it fiduciary duty more applies to most (but not all) investment advisers, lawyers, accountants etc...
As RFAs it's more about gathering information from the client and ensuring we recommend a suitable product, and not calling ourselves 'independent' advisers to avoid confusion.
If I'm way off the mark here please let me know as I'd like any confusion clarified...
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11 years ago
Lei Sun
I have never seen so much misinformation about Fiduciary status, duties and obligations in my life in an industry sector that should be well versed in the same - I suggest everyone read this book and then start the path of further learning - Commercial Equity - Fiduciary Relationships by John Glover (BA (Hons) (Melb), LLB (Hons) Melb), BCL (Oxon) Barrister and Senior Lecturer in Law, Monash University at Butterworths 1995
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11 years ago
Bruce Cortesi
As a long time adviser, what I struggle with is that advisers are facing without doubt an increase to the cost of doing business - if they continue to do it as they have always done.
Advisers need to change the way they do business to meet today's clients and environment. I agree - commission is NOT the way to increase professionalism of our industry, and churning is certainly not the answer.
However, the choice to churn or to take higher commission remains with the Adviser - they do not HAVE to accept it or participate - but they do. Advisers do a lot of talking - that is par to the profession. Their are a lot of good comments here. I only wonder how many of these Advisers will actually walk the talk.
Claims - this is everything. I am well aware of claims as I publish my Company's claims statistics every year, and yes Sovereign and other companies do well in this area - PROVIDED the Adviser and the CLIENT have done the right thing by each other.
The problem is that it is not the Product Provider selling the product or giving advice.....it is the Adviser.
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11 years ago
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