In the ongoing debate over whether risk commissions should be banned, many advisers have suggested that if all commissions are made standard, this will eliminate or substantially remove any conflict of interest, real or perceived.
Do you agree with this view? Our latest poll question asks:
Do you support standardising commissions for risk products?
While the question is simple, the issue, as usual, is complicated. For example, in considering whether commissions should be standardised:
- Should we at the same time consider whether upfront commissions should be removed entirely, in order to eliminate churning policies?
- Should group insurance products be included as well?
- Why would the life companies support a move that would reduce their flexibility and remove an area of competitive advantage?
In the comments we have received over the course of this year, advisers have consistently maintained that the playing field would be levelled for consumers if all policies paid exactly the same commission, thereby making the selection of product entirely on its merits and its relevance for the client.
On the other hand, there is a point of view held by many that supports the argument that in reality, a few points difference in commissions does not influence the adviser in any way when it comes to selecting the best, most appropriate product for their client.
But while this argument holds true across the industry, the broader issue also involves perception as well as reality.
Perhaps standardising commissions is the answer, or part of the answer, but this may not generate a lot of support from the product manufacturers, who strive to position their proposition to consumers and advisers in a way that differentiates their offering from their competitors.
… instead of standardising commissions, the industry should apply a maximum cap
An alternative solution previously proposed by advisers is that instead of standardising commissions, the industry should apply a maximum cap, which will apply to upfront, hybrid and ongoing commission options. This gives an opportunity for advisers to dial down in order to compete and/or to reflect the value of the advice being provided.
Some advisers have called on the Government to standardise commissions via regulation, while others have called on the industry to self regulate before it may be forced into action by FoFA reform legislation some time in 2011.
This poll is considering one solution, or one part of the solution, in relation to the future of risk commissions. What is your view? Register your vote and leave your comments, all of which will be forwarded to the Treasury as part of its industry consultation process on Future of Financial Advice reforms…
What does standardising commission mean? Is it a dollar value per policy or a percentage of premium?
If advisers put together a table as part of the SOA which included the following column headings:
Company
Product type
Annual premium
Commission Yr 1
Commission Yr 2+
Wouldn’t this be full disclosure allowing the consumer to determine whether there is a conflict of interest based on the adviser’s actual recommendation?
Maybe there is more than one way to skin a cat!!
It is in everyone’s interest that commissions are standardised. It creates more trust in an industry where unfortunately trust is lacking.
The article suggests that the life companies will object. Apart from creating more demand for their products, it will also reduce the risk of commissions becoming an ever increasing cost of doing business.
Advisers should be allowed to dial down commission rates with the reduction going to the customer.
The rate should be set in such a way that up front commission is reduced and trail increases, to discourage churn. For example, 70% up front and 20% trail. Perhaps their should be a level commission option too.
Only a politician would come up with the idea of no up front commission. Name one indusrty the works for nothing(apart from Santa) for a full year then get paid a small amount the next year.Even our emeny the Industry Funds realise you can’t provide a service for nothing, that’s why they are all offering financial planning services, and guess what, they charge for it.
Becoming a Nanny State and regulating everything is not going to solve anything Greg. So who will decide what we get paid? The same government that is so effective now. How many more “in consultations with industry” rubbish would we have to listen to? And in Consultation with who? The FPA the AFA the NTAA etc etc?
Standardising % commissions is a positive suggestion for the industry.
Then the product manufacturers can complete on product features, policy definitions etc.
Why not standardize the price of each product type from Life Insurance to petrol to breakfast cereals?
Why not legislate maximum company profit margins?
Why not legislate maximum Bank fees and charges?
Good grief – where would it end????
With risk products I have yet to find a client who gives a rat’s a##e about my commission. They are only interested in the cost TO THEM. With no investment and no risk of losing capital, value for money is all that is important, the same as buying any other consumable product. Some clients want/need a premium product, others a basic product. Its as simple as that!
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