Financial Advice NZ practitioner director and PAA chairman Bruce Cortesi and industry consultant Darrin Franks have reportedly developed a new remuneration model concept for advisers.

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 fee an adviser can charge would also be linked to the persistency they have, which is linked to the solution on the issue of churn that has been so topical recently,” he told media.

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

Former Fidelity Life chief executive Milton Jennings said he was aware Cortesi had put significant effort in recent years into developing the new concept. But he said it was unlikely to succeed.

He said a 60-year-old and 25-year-old with the same sums insured would have vastly different premiums - and it would be much harder for advisers to sell the same policy to the older person, who would have to pay higher premiums. It would be unfair to pay the same in both instances, he said.

“If commission is based on the sum insured you get that subsidising effect. Insurers need to base it on the premiums not the sum insured because of that difference in the age. Any actuary would tell you it’s a pretty hard concept to make work.”

He said however commissions were structured, the problem was the conflict of interest. "The only way to avoid that is to go to a level commission structure."

Michael Naylor, of Massey University, said it was worth exploring the idea.

"I agree with Milton that there are issues with tying commission to policy size and not premium cash-flow, but I like the idea of annual cash flow going to the policy service provider.

"The issue is that based on premium it seems to be a high percentage, whereas based on policy it seems a low percentage, so consumer acceptance could be better. Of course a percentage based on policy size for a young person could be a high percentage and lead to customers buying from an adviser who charges via the old model.

"It could be simpler to base payments on premiums with a capped upfront and a larger trail, tied to service provision, as I have previously suggested. If the insurer is paying it then cash-flow does need to tie to commission."

David Whyte, formerly of AIA and AIG Life, said regulators would likely point to potential risk of over-selling.

Industry commentator Russell Hutchinson said the things to consider around commission structures were who paid, how transparent it was for the customer, what was being paid and who should negotiate that.

A fundamental question, which insurers were not yet differentiating on, was whether the payment was for the sale or for advice, he said.

Adviser business coach Tony Vidler said he had seen an increasing number of insurance advisers charging clients a fee.

Hutchinson said it was something that more could do – but it was internationally recognised that commission of some form was likely to remain a factor in the industry.

The FMA said it had had discussions with Franks and Cortesi.