- Agree (63%)
- Disagree (33%)
- Not sure (5%)
Our latest poll asks you to consider a call to replace the term ‘commission’ in order to help enhance the public perception of advisers.
In its submission to the Life Insurance and Advice Working Group, ClearView Wealth has suggested the industry explore the possibility of eliminating the word ‘commission’ from its lexicon because of the negative connotations the public generally associates with this word, and replace it with a term such as ‘adviser service fee’.
… changing language to focus on the desired outcome is always an important element
We acknowledge the obvious, namely that calling ‘commission’ by another name doesn’t alter the fact that it’s still commission, and remains a form of conflicted remuneration. The point of this exercise relates entirely to perception, rather than reality. As ClearView CEO, Simon Swanson, points out, “Whenever change in attitudes are called for in society, changing language to focus on the desired outcome is always an important element. This would also potentially help advisers better explain their value proposition and remuneration structure without the discussion being overshadowed by the negativity surrounding the word ‘commission'”.
We note comments by advisers in previous polls, where they have observed that their clients rarely, if ever, question how they are paid for their life insurance advice services. This often-expressed comment seems to indicate that when it gets down to adviser, client and decision-making time, the word ‘commission’ has little relevance. But again, the point of ClearView’s argument relates to perception, and whether more clients would walk through the door in the first place, and reach that decision-making point with advisers if the word ‘commission’ was no longer used, or perceived as being used, by the broader public.
We know you’ll have your own views on this matter. On the surface, you may consider this debate to have little meaning when compared with the current debate surrounding how advisers will or should be paid in future for their life insurance advice. But if the court of public opinion matters, then so, too, does the question about whether the word ‘commission’ should continue to be used.
As always, we welcome your contribution to this debate, on which we will report the outcome next week…
It’s a case of ‘a rose by any other name’, really. Even though I voted ‘yes’ to the proposal here, the word means little in the overall concept of things.
“Brokerage’ is another term which may be less confronting to some. Sharebrokers use that expression and how often has that profession been challenged about their form of remuneration?
But there’s clearly a bigger picture here and whichever term is used to identify how we get paid isn’t really what all of this has been about.
Really…..if people think changing the word commission to something else is going to fix the mess the industry is in…..they are delusional.
Don’t know much about stockbrokers but I am aware that most apparently will have their “stocks of the day/week/month” to put to clients. I assume they all go to or access the briefings put on by researchers and the companies themselves. A good lunch/wine maybe ?
Most would probably admit a bias to certain types of shares. They do encourage punters ( oops, sorry, investors ) to buy larger parcels than possibly intended. That means more commission doesn’t it !
As are we, these guys are un-employed every morning. They take the risk, so do we
So why aren’t ASIC breathing down the neck of commission remunerated stockbrokers.
Could it be that stockbrokers are not seen ( yet ) as a threat to the ISA funds, ASICs fellow travellers in the attacks on advisers commissions
So far we have accepted the fact that there are no commissions on investment products and the words “Fee for Service” have been substituted.
Can anyone out there tell me if the Fee for Service ” now being charged is more or is it less than the old commission models…. or perhaps it’s just the same?
Can anyone tell me what the right hourly rate for “Fee for Service ” should be ? And on what basis do you strike that rate ? In other words validate it .
I just don’t get it. If everyone is hung up on words, then why don’t we all just charge or receive the same remuneration for each service/recommendation and then the client can decide if the quality of advice should be the determinant as to whether they proceed.
@ Steve C…
The only reason the industry is in a mess is because those who are wanting to change things are influenced by public servants who don’t have a clue about how the industry really functions for both the adviser and the client.
They have allowed a few shonks and those motivated by self interest, namely the ISA to dictate to the wider community how and what we are paid.
I can think of no other profession/industry that’s been so over regulated by the left wing side of the political divide.
Alleycat – you’ve uttered words of gold again as usual. You have a talent for nailing an issue. Look, if changing the word to brokerage will help in any small way let’s do it. Commission seems to be a dirty word and we all know that it is not a dirty word to US, only the self serving consumer groups (who are not after the best for real consumers – only their special interests). Change the damn word to brokerage and move on, I say! Give the bleeding hearts one less thing to bleat about.
Most if not all clients accept that we need to be paid. Most clients who would need to rely heavily on insurance in the event of something going wrong would not or could not afford a direct fee. However the commission is literally a fee for service which is loaded into the premium, therefore the client is paying a fee in an indirect manner. If this was the way the payment to the adviser was explained then perhaps the debate or need for the current system would be better understood by all parties who seem to have have poorly educated views on this vitally important matter.
Change a word and you change the very NATURE of a thing? Which bright-spark thought that one up?
I have been calling for years to rid the industry of the word “commission”. Sales people like real estate agents among others, earn commission. I didn’t think we were sales people, we are now advisers or at least that is what we are meant to be. We provide financial and insurance advice. Unfortunately the term “commission” has been turned into a dirty word such that if it’s mentioned, you are perceived to be receiving undeserved income.
The current remuneration arrangements for risk advice should remain so that the average person can still afford to get risk advice. I’m not against some adjustments though.
But as others have said, there are lots of other issues than just how we are remunerated. The industry needs to be cleaned up and the rotten apples removed and I say let’s start with the banks.
The banks have a lot to answer for at the moment.
I remember having a discussion about 25 years ago with the head of an insurance company about the semantics involved in our remuneration. He warned me that one day the terms ‘upfront commission’ and ‘servicing commission’ would bring great pain to advisers.
Are semantics important? The extreme European right wing are still arguing Hitler ‘liberated’ Europe.
We choose our words carefully with clients to convey accurate and honest meanings. Why wouldn’t we do the same to save a great industry from those using deceitful language in order to gain a dishonest advantage?
Am I paid ‘sales commission’ when I spend hours finding an interested prospect, uncover their needs, suggest astute solutions, encourage action & walk them through the underwriting minefield?
No, because payment is not related in any manner to any of the above.
The payment I receive relates to one thing and one thing only: business placement and acceptance. The product providers don’t pay me if I don’t place business with them no matter how much other work I do throughout the process.
I am paid a “Placement Brokerage” and importantly, it is paid by the insurer, NOT the client. This is just one of a large number of expenses met from the ongoing premiums the client agreed to pay. These include wages for the provider’s management and staff, costs for product design and marketing, advertising, printing, education and training as well as putting money into the claim pool and lots of other costs associated with running an insurance company.
Like all those other expenses the Placement Brokerage is NOT an additional expense paid by the client.
If it was, then a client paying on a monthly basis would have to pay both the $150 monthly premium PLUS the $2,000 Placement Brokerage in that first month.
The next question relates to the brokerage the product providers pay from the 2nd year until the termination of the policy.
For too long this has been inaccurately described as ‘service commission’.
But does this payment relate in any way to the service provided by an Adviser to the client?
Obviously, the answer is no. I have had many occasions when I have given wonderful service to clients and their families, only to lose this payment when the policy terminates.
Anyone ever looked after a life claim?
So if this payment doesn’t relate to service, what does it relate to?
The answer is obvious… A premium payment which renews the policy for another month, or year.
And again, this payment isn’t paid by the client. It is another expense paid by the product provider as a cost of retaining business and profitability.
If it were a direct client expense, it would need to be identified on a policy by policy basis and charged separately at the time of payment (not averaged out of ongoing premium income). Additionally, it would only be charged to the policyholder if it was actually paid to an adviser (ie an ‘orphan policyholder would be charged a lower premium than a policyholder where 10% renewal was being paid who would pay less than if 20% were being paid etc).
The indisputable fact is that as long as one of my clients pays a premium, irrespective of whether I have had any contact with them that day, week, month or year, I am paid a ‘Renewal Brokerage”.
“Placement Brokerage” & “Renewal Brokerage”. Both paid by the product provider, NOT the client.
Does anyone have more accurate and honest descriptions?
While on the subject, an associated problem that seems to have been ignored during this debate is the placement adviser’s right to ongoing Renewal Brokerage.
It is obvious the industry & government is intent on moving advisers to a lower ‘placement’, higher ‘renewal’ brokerage basis, arguing that while we’ll lose (heavily) in the short term, we’ll be substantially better off in the long run because of the increase in Renewal Brokerage. Yet they refuse to guarantee that the advisers who did the hard work in the first place will actually receive that Renewal Brokerage.
If their argument is that under the new arrangements our Placement Brokerage will be paid to us in arrears over the life of the policy rather than at the time we do the vast majority of the work, then surely they MUST guarantee the originating adviser actually receives those payments?
If Renewal Brokerage is not directly related to an Adviser providing ‘service’ (which it clearly is not) but is a form of payment in arrears for product placement based on the policyholder paying a premium, how can a product provider justify paying that Brokerage to a different adviser on the basis that, “the new adviser will, in future, be providing ongoing service to the client for this policy”?
I’m tired of hearing senior insurance company employees (who are themselves usually on guaranteed ‘upfront’ incomes plus bonuses) continue to argue they must transfer (“we have no choice”) the Renewal Brokerage to any ‘Adviser’ who gets a letter signed by a policyholder including financial planners who know nothing about risk, their own internal adviser, a rebating company or an accountant who gets the letter signed along with 30 other unread documents at tax time.
The brokerage is paid by the policy provider based solely on whether they have received a premium to keep the policy in force. Once the premium has left the policyholder’s account, it is no longer their money & they should have no ability to direct the provider on how to use it.
To take it to the absurd, if the policyholder does have the right to redirect that piece of the insurance company’s money, then by the same logic they should also be able sign a letter and redirect the rest of their premiums to entities of their choice. (“Dear Insurers, Please redirect any of my premiums currently going into your claims pool to my accountant so he can reduce my SMSF audit bill”).
To say Renewal Brokerage cannot be tied to the placement adviser is, I believe, untrue.
Lumley guaranteed Renewal Brokerage always went to the placement adviser irrespective of who was or wasn’t saying they were providing ‘service’. It was legal and it allowed a good adviser selling plans for the long term could take the financial risk out of choosing an appropriate lower hybred or level payment scale.
Thoughts?
If the Lumley model was so awesome, why were they the only company offering it and why hasn’t it been embraced by everyone else?
Simple fact is that if you are providing an ongoing service to a client you should receive a payment – irrespective of if you are the original adviser or not. Why should the original adviser be entitled to a trail commission 5 years after the policy has been put into force after never having seen or heard from them if another adviser has taken over the policy, reviewed it and found it to still be in best interest?
Everyone is banging on about the big end of town trying to squeeze out the little guy only looking after the bank/life co’s self-interest yet fail to acknowledge the irony of their argument.
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