Russell Hutchinson Opinion
Opinion: Could commission disappear?
Wednesday 12th of August 2009
Started by their regulator, there is a slight other-worldly feel to the debate: the main opposition party has effectively said it will scrap the regulator, shifting its functions elsewhere. Combine that with a certain industry complacency about the status quo, and it might make it easy to mock such a question - could commission disappear?
But our near neighbour, Australia, is also beginning to debate commission.
The supposed evil of commission is that it explicitly ties remuneration to this transaction, overwhelming the good intentions and ethics of the adviser in a way that a salary does not.
The problem is that the great thing about commission is... that it explicitly ties remuneration to the transaction, overwhelming the desire to do anything other than call potential clients with the desire to make more money.
The arguments will tear to and fro.
The simplicity of banning commission, the nasty ring that commission has in the ear to many consumers and their instinctual dislike of ‘middle-men' will ensure there are plenty of willing listeners.
But the problems that come with commission come with payment in almost any form - consider a salaried adviser struggling to make budget. Suddenly, instead of a single commission being at stake in one sale, near the year-end their job - or even career - could hinge on just one sale.
Perhaps we should hope that the UK's FSA can hurry up and ban commission as a kind of large and hopefully decisive experiment - we can then leave it to the market to decide how best to pay people.
Comments (4)
Bryan Hooper
I agree with John 100% there is massive twisting in the NZ industry --- which is promoted in large by the insurance companies.I have seen offers of taking over ( twisting ) an entire book from one company to another with full commission plus bonus.This practice can be stopped in its tracks by the product providers.As for commission as a means of remmuneration -- come up with a better option John and we will all listen --- regards Bryan
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15 years ago
Ron Flood
John says" as long as NZ advisers want to earn the respect of their peers and clients they need to move away from being salesman." I have been in the life insurance industry for 30years 15 days and am proud of every second I have been a "salesman". My first death claim in 1981 was the result of a young lady coming into the office with her boyfriend to cancel his life policy. They wanted to save for their first house and thought the premiums he paid were slowing them reaching their goal. Not only did I "sell" them on the idea it was money well spent, the young lady took out a policy as well. Within 2years this young lady died of cancer and had it not been for my "sales" skills, she would have had no cover in place.
My largest claim to date is in excess of $1.1million. The policy was on a person who was in partnership with another. When the partnership disolved, he could not see the need to continue with any cover. He was not a believer of insurance and only had a policy to appease his business partner. I was able to "sell" him on the idea of continuing with the policy (it had been in force five years). The client died of cancer within 18mths and his wife and young family were greatful I "sold" him on the idea he needed to keep the policy.
I know of a client whose "professional adviser" charged a fee for advice and had the client cancel all his life cover. This was in spite of the fact the client's brother was a broker and advised against it. The arguement was the insurance premiums were impacting on his retirement savings and in the long term (14yrs)he would be better directing the money into retirement savings. The client died of cancer within 2 years and the accumulated savings weren't even enough to bury him.
John, insurance is "sold" by "salesman" and always will be. The challange to us all is to ensure that in future insurance is sold by competent, qualified and professional salesman.
Just because a "salesman" receives commission, does not make them any less professional than if they charged a fee. The problem we have is that if insurance was sold only to clients on a fee bases, we would have an even larger number of underinsured New Zealander's.
As far as John suggesting there is a problem with clients being "shifted" between companies, I agree. This problem is easily solved within our industry by simply cutting the commission paid on replacement policies to a level amount of say 20% upfront with 20% annual renewals.
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15 years ago
Brent Lewis
Well, John I bet it breaks your heart finding $40,000 or $50,000 commissions in your account, but if it makes you sleep better, there's plenty of good charities that could use your commissions, to help ease your conscience.
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15 years ago
Jeff Tobin
As a commission insurance salesperson for 22 years, my first sale is myself, to build trust with people I consult with. After finding someone to listen to me about insurance ( how do you do that? many ask) and after a lengthy needs analysis process these propects may become clients and eventually I may get paid a commission, I dont own that money for 2 years because of clawback terms. So if I do a shonky job you can bet the client will have a dose of buyers remorse and cancel their covers within this period. No one wins. However if I do a standard report for a fee, who cares if they buy the cover (insurance)they need and keep it, I have been paid a fee and am off to the next one. I too have had terminally ill clients that I delivered the life insurance cheque to in person, that would not have had the amount or type of covers in place unless I had guided them professionally and seviced them over the years. I too have dealt with all sorts of claims from houses burning down to people on their death beds, literally. No one asked how much I made at claim time because I didnt make anything during those times of helping these clents in their biggest time of need, and no one asked me how much the premium is at claim time. I may have made the commission years before and can you imagine charging a fee to help a client process a claim, not the way I do business. With third generation clients now I must be doing a lot right. No insurance company paid me a guaranteed salary,4 weeks holiday pay each year, gives me a company car, covers my office expenses, pays my staff wages or allows me any sick leave or superannuation or gifts me company shares. Funny, that I dont see a lot of people wanting to be insurance advisors these days. So we have this supply and demand thing going on. The insurance company incurs the commission cost when the business goes on their books. If any insurance company has a problem paying a decent commission when they get chosen to have the privaledge of my clients insurance business please publically let us all know and I am sure we can arrange for that company not to have an opportunity to pay any more commissions, if its hurting them so much. The insurance companies will not be reducing their premiums anytime soon if commissions were reduced, especially with pending tax changes for life offices, so who would benefit by less advisors and less insurance sold, not Joe Public, not the economy. How many "professional" fee charging investment advisors put their clients hard earned money in Finance companies or other areas where their advice was taken for a fee and clients lost their money in part or whole? How many fee charging lawyers("professionals"?) have been in the media for the wrong reasons over the years, its the one percent of fee charging lawyers that make the other 99 percent of fee charging lawyers look bad. Everyone loves paying fees, dont they?.As has been said being profesional is about a lot of things, integrity for one, and not how you are remunerated or how many letters you have after your name either.There should be choice as there is now, of the way an advisor is remunerated.One style of remuneration isnt going to suit all types of advice or products, if you want to charge a fee especialy for investment advice, great, if you want the commission option, usually best for insurance advice, great. And remember the bean counters should stick to counting beans :-)Have a nice day.
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15 years ago
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