The Government has flagged that it will crack down on sales incentives that could drive poor customer outcomes – it is expected that will mean a move away from high upfront commissions for life insurance advisers.

Darrin Franks and Bruce Cortesi have followed up last year's release of their proposed new commission plan.

It would involve advisers receiving commission based not on annual premiums but on up to 1 per cent of the total sum insured. The maximum an adviser could charge would be linked to their persistency.

Trail commission would remain but would be paid to the adviser providing the service, not the adviser who placed the policy.

The proposal was criticised at the time because the premiums involved in a policy for a 20-year-old would be lower than the premiums for a 50-year-old with the same sum insured.

But the pair said change was needed.

"Current commission models are complex, cumbersome and confusing. Many advisers find the commission models for the various product providers a challenge – especially if trying to reconcile accounts."

Their meetings with product providers had been positive.

At OnePath, it was noted that the model they proposed had not been thought of. 

"It was even considered to have potential for other countries to follow given it was so different to anything ever previously presented. Other countries have simply reduced the upfront commission – but still retained a commission-based model," the paper said.

"Early meetings with the head of one of Sovereign’s key distribution channels showed enthusiasm for the model, but also with concerns on how insurers would be able to effectively compete if they could not use adviser commission as a lever."

Advisers were shown the plan at the Share conference and PAA regional meetings.

“Whilst some comments were less enthusiastic, overall, the feedback was encouraging from the perspective of the first point, and that advisers were prepared to have a conversation, and the impression was that the solution should be driven by product providers and advisers as they are best positioned to create a solution that each can work with. Clearly there was less appetite for a solution to be driven from a regulatory perspective or based upon what has occurred in Australia recently."

Franks and Cortesi said their plan would address churn because a clawback of implementation or set-up fees would be incurred within a set period.

They also proposed changes to the offshore conference model, which the Government has signalled it wants gone.

“Contrary to some industry commentary, this paper suggests the term ‘incentive’ (as it relates to offshore conferences for example) would not be a problem if some structure is placed around them.

“It is also acknowledged that such incentives (often referred to as ‘soft dollars’) and that they have been a marketing program just like any other commercial identity to gain business. This paper would also propose that any method of acknowledging support an adviser gives a product provider in the way of volume should be focused on business support or business growth – which could be in the form of a business conference for an adviser. The most critical component to disincentivise advisers is that any offshore reward or acknowledgement as currently offered by some product providers are not advertised or marketed within the industry.

“Rather, product providers monitor the performance of advisers relative to their own business model and invite those they feel qualify to attend at a future point in time.”

Franks and Cortesi propose a six to 12-month consultation process to adopt the new proposal.

"This will send a strong signal that the industry is capable in taking on responsibility to reinvent itself for the benefit of the consumer. It is noted that some product providers have indicated the lead in time for introduction may not be any greater than six months."

They are now seeking industry feedback.

Read the Commission Restructure Discussion Paper here.